Employees’ Provident Fund Organisation issues guidelines on surcharge to be levied for investment deviations and re-auditing of accounts for private provident fund trusts
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Employees’ Provident Fund Organisation issues guidelines on surcharge to be levied for investment deviations and re-auditing of accounts for private provident fund trusts

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In 1952, the Indian Government introduced a mandatory savings scheme for non-government employees known as Employees’ Provident Funds Scheme (EPFS). In this scheme, employees and their employers are ...

In 1952, the Indian Government introduced a mandatory savings scheme for non-government employees known as Employees’ Provident Funds Scheme (EPFS). In this scheme, employees and their employers are required to make a contribution to the Indian Provident Fund (PF).

The Indian Government also permits employers to establish and manage their own private PF Trusts, subject to conditions prescribed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and Income-tax Act, 1961.

Recently, the Employees’ Provident Fund Organisation (EPFO) has issued two circulars for securing proper compliance in respect of establishments permitted to run in-house PF Trusts under the EPF Act:

1) Guidelines on the rate of surcharge to be levied on the Board of Trustees of exempted/relaxed establishments under the EPF Act for deviation from the prescribed pattern of investment.

2) Re-auditing of accounts of provident funds maintained by Exempted and Relaxed establishments under the EPF Act.

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Employees’ Provident Fund Organisation issues guidelines on surcharge to be levied for investment deviations and re-auditing of accounts for private provident fund trusts Employees’ Provident Fund Organisation issues guidelines on surcharge to be levied for investment deviations and re-auditing of accounts for private provident fund trusts Document Transcript

  • © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG in INDIA Employees’ Provident Fund Organisation issues guidelines on surcharge to be levied for investment deviations and re-auditing of accounts for private provident fund trusts 28 May 2014 Background In 1952, the Indian Government introduced a mandatory savings scheme for non-government employees known as Employees’ Provident Funds Scheme (EPFS). In this scheme, employees and their employers are required to make a contribution to the Indian Provident Fund (PF). The Indian Government also permits employers to establish and manage their own private PF Trusts, subject to conditions prescribed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and Income-tax Act, 1961. Recently, the Employees’ Provident Fund Organisation (EPFO) has issued two circulars for securing proper compliance in respect of establishments permitted to run in-house PF Trusts under the EPF Act: 1) Guidelines on the rate of surcharge to be levied on the Board of Trustees of exempted/relaxed establishments under the EPF Act for deviation from the prescribed pattern of investment. 2) Re-auditing of accounts of provident funds maintained by Exempted and Relaxed establishments under the EPF Act. Guidelines provided in the circulars 1) Guidelines on the rate of surcharge to be levied on the Board of Trustees of exempted/relaxed establishments on account of deviation from the prescribed pattern of investment The establishments permitted to run in-house PF Trusts under the EPF Act are required to follow an investment pattern specified by the Government of India. The following specific instructions is given under the EPFS for investment of money: "The Board of Trustees shall invest the monies of the provident fund as per the directions of the Government from time to time. Failure to make investments as per directions of the Government shall make the Board of Trustees separately and jointly liable to surcharge as may be imposed by the Central Provident Fund Commissioner or his representative.”
  • © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. In the above context, the ‘sub-committee of the Central Board of Trustees, EPF on Exempted Establishments’ has issued guidelines to bring appropriate deterrence on deviation in adhering to the investment guidelines.  For establishments which have already been granted exemption or are enjoying relaxation pending grant of exemption, the rates of surcharge for all deviations till Financial Year (FY) 2013-14 will be as follows: (i) Investment deviation in Central Government securities and State Government securities: 0.0025 per cent of the amount in shortfall of prescribed percentage of investment in these two categories combined together. (ii) Investment deviations made in bonds/ securities of public financial institutions: 0.0025 per cent of the amount in shortfall of prescribed percentage of investment in the category. (iii) Deviations in private sector bonds/securities: 0.005 per cent of amount in excess of prescribed percentage of investment in this category.  For the period prior to FY 2013-14, where the extent of deviation is beyond 10 per cent, the surcharge may be an additional 20 per cent over and above the surcharge so worked out.  For prospective deviations from FY 2014-15 onwards, the rates of surcharge will vary on the basis of occasion(s) of deviation: (i) Central Government securities and State Government securities: the rates vary from 0.25 per cent to 1.00 per cent of the amount in shortfall of prescribed percentage of investment in the category. (ii) Bonds/Securities of public financial institutions: the rates vary from 0.25 per cent to 1.00 per cent of the amount in shortfall of prescribed percentage of investment in the category. (iii) Private sector bonds/securities: the rates vary from 0.50 per cent to 2.00 per cent of the amount in excess of prescribed percentage of investment in the category plus 10 per cent of the surcharge so worked out.  Deviations will be regulated by levy of surcharge within the securities class given in the prescribed investment pattern only. If the Trust invests in a security/scrip in which the investment is not permitted, it will not be construed as mere deviation but violation that may attract cancellation/withdrawal of exemption/relaxation.  Further, prospective deviations (from 1 April 2014) on maximum of three occasions may be regularised by levy of surcharge as mentioned above, and any deviation beyond this may result in cancellation of exemption or withdrawal of relaxation as the case may be, apart from levy of surcharge. 2) Re-Auditing of the accounts of private Provident Fund Trusts by any other qualified auditor The following specific regulation is given under the EPFS for audit of establishments permitted to run in- house PF Trusts under the EPF Act: "The account of the Provident Fund maintained by the Board of Trustees shall be subject to audit by a qualified independent chartered accountant annually. Where considered necessary, the CPFC or the RPFC in-charge of the Region shall have the right to have the accounts re-audited by any other qualified auditor and the expenses so incurred shall be borne by the employer. " EPFO has advised its officials to use a specific proforma, which was enclosed in the circular, for re- auditing the accounts of the Provident Fund Trusts maintained by Exempted and Relaxed establishments by any other qualified auditor where considered necessary. The officials have also been advised that action should be initiated against establishments wherever they find that the audit reports are not coming properly. Our comments The decision by the PF authorities that the past cases of investment deviations will be regularised by levy of nominal surcharge is a welcome relief for the industry since many establishments had to move from an in- house PF trust to the statutory fund in the past for investment deviations. The PF authorities have made a distinction between investment deviation (within permitted asset classes) and investment violation (investments in asset classes not permitted in investment pattern). Establishments running in-house PF trusts should be more vigilant on their investments and other governance issues as the PF office is now monitoring the functioning of private PF trusts vigorously. Source: http://www.epfindia.com/Circulars/Y2014- 15/Exem_SurchargeBOT_2961.pdf Latest accessed on 28 May 2014 http://www.epfindia.com/Circulars/Y2014- 15/Exem_Audit_ExEstt_2682.pdf Latest accessed on 28 May 2014
  • © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity “are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010