Is It Possible to Opt Out of PF and Receive My Full Salary in Cash?

I am working in a small company where there are around 150 employees. My HR officer always tells us that PF is compulsory for each and every worker. However, I do not want to be part of the PF scheme; I prefer to receive all my salary in hand. Is it possible for me to take my entire salary amount in cash? Is PF compulsory for employees?

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PF Exemption for Employees

If your basic pay is more than ₹6,500, you can fill out Form 11 to apply for an exemption from PF. However, once it is covered, it's not possible to get an exemption unless you are still in service with that organization. Apart from that, it is mandatory to be under PF. It is advisable to be covered under PF.

Regards,
P. Manoz Kumar
B4 Excellence

First, ensure whether your establishment is covered by the P.F Act. If so, it is mandatory to cover the employees.

Regards,
B. Saikumar
Mumbai

At the outset, I have a question for Nilesh: "Why don't you want to be covered under the PF scheme?" You must know that this scheme has a number of benefits for you and need not be mentioned here.

Applicability of the PF Scheme

It applies to the whole of India except Jammu & Kashmir and is applicable to:

• Every establishment that is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by the Central Government in the Official Gazette. (List of Industries/Establishments)

• Employing 20 or more persons.

• Cinema Theaters employing 5 or more persons.

The Act does not apply to cooperative societies employing fewer than 50 persons and working without the aid of power.

The establishment to which this Act applies shall continue to be governed by this Act, even if the number of employees falls below 20 at a later date.

If any of the establishments do not satisfy the above conditions for coverage and if the employer and the majority of the employees are willing, the Act may be applicable to such establishments.

As Manoj has rightly pointed out, there is no way one can opt-out once enrolled under PF unless you leave the organization and join another organization with a salary more than Rs 6500 or which is not covered under the act.

My suggestion is to enjoy the benefits of the PF Scheme.

Understanding PF and ESI Applicability

Usually, if your gross salary is above ₹15,000 per month, PF (Provident Fund) applies, and if it is below ₹15,000 per month, ESI (Employee State Insurance) is applicable, and they are mandatory. PF is calculated on the basic salary. ₹6,500 is the limit for limited and unlimited PF calculation.

Regards

Oh yeah. You are right, Dear Mohanty. I do not know how to thank you for correcting me. I was dealing with medical insurance and ESI, and I have made a gross mistake here! I really thank you for making me realize, thanks a lot. This is what happens when we deal with multiple thoughts at a time! Hearty thanks again.

PF Provisions and Eligibility

The PF provisions are not clear about the fixed 'amount' for eligibility. The company should have at least 20 employees. If your PF contribution is above ₹6,500 per month, you may become a member of other schemes.

Types of PF

There are two types of PF - Ltd PF & Unltd PF.

- **Ltd PF** = 6,500 LIMIT, 6,500 * 12% = 780 PM.
- **Unlimited PF** = Whatever Basic * 12%.

That means, in the case of limited PF, whatever may be your basic, the maximum limit is ₹6,500 per month. If your basic is ₹4,500, then ₹4,500 will be considered, whichever is lower.

For those who have a basic salary of up to ₹6,500, contributing to the EPF is mandatory. Contributions are voluntary for those whose basic salary exceeds ₹6,500. But it may be advised to contribute to the PF fund to avail of the benefits, like the safety of returns assured by the government, loan availability, interest rate, one of the good retirement plans, timely withdrawal (your withdrawal can be made within 3 months after submitting the withdrawal form, but transfer consumes a lot of time), after all, it's a social security fund. And in case the employee (salary of above ₹6,500) can be a member if his employer binds himself to pay the dues under the Act in respect of him and his employee, and the employee also agrees to the deduction from his pay. Once he binds himself, it becomes mandatory for the employee.

So in your case, if you have agreed while joining in your agreement, then your employer may withdraw the contribution from your salary.

There is another provision too. If your salary is ₹6,500 while joining, no doubt PF is mandatory, but if it increases over ₹6,500, then your contribution may be capped at ₹6,500 in case you do not want to contribute. However, if the agreement is silent on that issue, then you may withdraw from contributing to PF after the increase.

ESI Applicability

And in the case of ESI, it is applicable if the Gross Salary is less than ₹15,000 PM.

- Minimum number of employees = 10.
- Employee contribution = 1.75% of Gross Salary.
- Employer contribution = 4.75% of Gross Salary.

I believe I have made it clear.

Have a nice time.

How could you get out from PF if this act is made for social security purposes? If you are not calculating anybody in society, then only it is possible. Nobody can oppose the act; it is compulsory for every Indian.

Please go through the below points to understand PF.

EMPLOYEES' PROVIDENT FUND SCHEME 1952

Employee Definition:

"Employee" as defined in Section 2(f) of the Act means any person who is an employee for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets wages directly or indirectly from the employer and includes any person employed by or through a contractor in or in connection with the work of the establishment.

Membership:

All the employees (including casual, part-time, daily wage contract, etc.) other than an excluded employee are required to be enrolled as members of the fund the day the Act comes into force in such an establishment.

Basic Wages:

"Basic Wages" means all emoluments earned by an employee while on duty or on leave or holiday with wages, in either case in accordance with the terms of the contract of employment and which are paid or payable in cash, but does not include:

- The cash value of any food concession;
- Any dearness allowance (that is to say, all cash payments by whatever name called, paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus, commission, or any other allowance payable to the employee in respect of employment or work done in such employment.
- Any present made by the employer.

Excluded Employee:

"Excluded Employee" as defined under para 2(f) of the Employees' Provident Fund Scheme means an employee who, having been a member of the fund, has withdrawn the full amount of accumulation in the fund on retirement from service after attaining the age of 55 years; or an employee whose pay exceeds Rs. Five Thousand per month at the time, otherwise entitled to become a member of the fund.

Explanation:

'Pay' includes basic wages with dearness allowance, retaining allowance (if any), and cash value of food concessions admissible thereon.

Employee Provident Fund Scheme:

The Employees' Provident Fund Scheme takes care of the following needs of the members:

(i) Retirement (ii) Medical Care (iii) Housing (iv) Family obligation (v) Education of Children (vi) Financing of Insurance Policies

How the Employees' Provident Fund Scheme works:

As per the amendment dated 22.9.1997 in the Act, both the employees and employer contribute to the fund at the rate of 12% of the basic wages, dearness allowance, and retaining allowance, if any, payable to employees per month. The rate of contribution is 10% in the case of the following establishments:

- Any covered establishment with fewer than 20 employees, for establishments covered prior to 22.9.97.
- Any sick industrial company as defined in clause (O) of Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985, and which has been declared as such by the Board for Industrial and Financial Reconstruction.
- Any establishment which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and
- Any establishment engaged in manufacturing of (a) jute (b) Breed (d) coir and (e) Guar gum Industries/Factories. The contribution under the Employees' Provident Fund Scheme by the employee and employer will be as under with effect from 22.9.1997.

Employees' Provident Fund Interest rate:

The rate of interest is fixed by the Central Government in consultation with the Central Board of trustees, Employees' Provident Fund every year during March/April. The interest is credited to the member's account on a monthly running balance with effect from the last day of each year. The rate of interest for the year 1998-99 has been notified as 12%. The rate of interest for 99-2000 w.e.f. 1.7.'99 was 11% on monthly balances. 2000-2001 CBT recommended 10.25% to be notified by the Government.

Benefits:

A) A member of the provident fund can withdraw the full amount at the credit in the fund on retirement from service after attaining the age of 55 years. The full amount in the provident fund can also be withdrawn by the member under the following circumstances:

- A member who has not attained the age of 55 years at the time of termination of service.
- A member is retired on account of permanent and total disablement due to bodily or mental infirmity.
- On migration from India for permanent settlement abroad or for taking employment abroad.
- In the case of mass or individual retrenchment.

B) In the case of the following contingencies, the payment of provident fund be made after completing a continuous period of not less than two months immediately preceding the date on which the application for withdrawal is made by the member:

- Where employees of a closed establishment are transferred to another establishment, which is not covered under the Act.
- Where a member is discharged and is given retrenchment compensation under the Industrial Dispute Act, 1947.

Withdrawal before retirement:

A member can withdraw up to 90% of the amount of provident fund at credit after attaining the age of 54 years or within one year before actual retirement on superannuation, whichever is later. Claim application in Form 19 may be submitted to the concerned Provident Fund Office.

Accumulations of a deceased member:

The amount of Provident Fund at the credit of the deceased member is payable to nominees/legal heirs. Claim application in Form 20 may be submitted to the concerned Provident Fund Office.

Transfer of Provident Fund account:

Transfer of Provident Fund account from one region to another, from Exempted Provident Fund Trust to Unexempted Fund in a region, and vice-versa can be done as per the Scheme. Transfer Application in Form 13 may be submitted to the concerned Provident Fund Office.

Nomination:

The member of Provident Fund shall make a declaration in Form 2, a nomination conferring the right to receive the amount that may stand to the credit in the fund in the event of death. The member may furnish the particulars concerning himself and his family. These particulars furnished by the member of Provident Fund in Form 2 will help the Organization in building up the data bank for use in the event of the death of the member.

Annual Statement of account:

As soon as possible and after the close of each period of currency of contribution, annual statements of accounts will be sent to each member through the factory or other establishment where the member was last employed. The statement of accounts in the fund will show the opening balance at the beginning of the period, the amount contributed during the year, the total amount of interest credited at the end of the period or any withdrawal during the period, and the closing balance at the end of the period. Members should satisfy themselves as to the correctness of the annual statement of accounts, and any error should be brought through the employer to the notice of the correct Provident Fund Office within 6 months of the receipt of the statement.

Regards,
Ashwin.

Clarification on PF Act Eligibility

I have one doubt regarding the PF Act. If the basic salary is more than Rs. 6,500, PF is eligible only for that Rs. 6,500 from both the employee and employer. The employee can contribute more than that amount to PF, which is known as VPF, but the employer is not required to contribute above Rs. 6,500 (Rs. 780). However, no act states that above a salary or basic of Rs. 6,500, PF does not need to be covered. Is this correct, or is there any section or Act that says otherwise? Kindly reply or suggest what the possibilities are.

Regards,
Suresh Kumar M