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Hi Vani,
Thanks for your reply. I had spoken to one PF employee in Mumbai and she told me that Leave Encashment attracts PF. However I am waiting for more details regarding the same from her. I shall inform you if any amendments have been made after 2003.
Regards
RAM
From India, Mumbai
Thanks for your reply. I had spoken to one PF employee in Mumbai and she told me that Leave Encashment attracts PF. However I am waiting for more details regarding the same from her. I shall inform you if any amendments have been made after 2003.
Regards
RAM
From India, Mumbai
Hi!
Yes, leave encashment attracts Provident Fund. It is actually based on an old Supreme Court judgement but it is only now that the PF authorities have woken up and started giving it proper publicity. I shall let u know the case details. But this raises certain important questions (i) whether the employer will be required to give a matching contribution on the leave encashment amount ; (ii) Employees can accumulate and encash their leave at the time of retirement upto 300 days (exempt from tax under IT Act upto 300 days). Will PF be deducted on this and is the employer required to make matching contribution? Can anyone enlighten me?
Best Regards, Learner
Yes, leave encashment attracts Provident Fund. It is actually based on an old Supreme Court judgement but it is only now that the PF authorities have woken up and started giving it proper publicity. I shall let u know the case details. But this raises certain important questions (i) whether the employer will be required to give a matching contribution on the leave encashment amount ; (ii) Employees can accumulate and encash their leave at the time of retirement upto 300 days (exempt from tax under IT Act upto 300 days). Will PF be deducted on this and is the employer required to make matching contribution? Can anyone enlighten me?
Best Regards, Learner
Hi All,
Please be informed that as per the latest communication (September 9, 2005) of Employees Provident Fund Organisation, the matter of Recovery of PF contribution on Leave Encashment prior to 1st May 2005 has been kept in abeyance and will be placed before the next meeting of Central Board of Trustees for deciding the cut off date for enforcement of PF contribution on leave encashment paid on or after 01.10.1994.
Now the PF authorities have been asked to enforce the recovery of PF contribution on Leave Encashment paid on or after 1st May 2005.
Thanks for your information, Anu.
Best Regards
RAM
From India, Mumbai
Please be informed that as per the latest communication (September 9, 2005) of Employees Provident Fund Organisation, the matter of Recovery of PF contribution on Leave Encashment prior to 1st May 2005 has been kept in abeyance and will be placed before the next meeting of Central Board of Trustees for deciding the cut off date for enforcement of PF contribution on leave encashment paid on or after 01.10.1994.
Now the PF authorities have been asked to enforce the recovery of PF contribution on Leave Encashment paid on or after 1st May 2005.
Thanks for your information, Anu.
Best Regards
RAM
From India, Mumbai
Dear Ram
Yes encashment of leave attracts EPF. September communication in this regard by EPF authorities is also very clear. The main thing which needs to looked into is at what time the encashment of leave attracts EPF deductions.
Generally prevalent principals of Leave encashment are
1. Employee opts of the encashment of leave balance with him as per the company rules.
2. Companies give encashment against the leave at the close of leave year or Financial year.
There is another method of leave encashment which has been put forward correctly , that is , encashment of leave at the time of retirement.
Under the above first two clauses if encashment is being done it is true that it attracts EPF deductions. The case which went upto Supreme Court also is based on the above two clauses. Under the above two clauses leave encashment becomes a part of salary and it falls under the definition of wages as per section 2 of the EPF & MP act,1952.
Previously no such practice of encashing the leave was there. Only principal applicable was that it will be encashed at the time of resignation or retirement. Any amount paid as retirement benefits does not attract EPF contributions. Even the IncomeTax has also given exemption from deduction of TDS on encashment of leave at the time of retirement subject to certain limit. The principal ITax department followed was of retirement benefits.
EPF authorities were also following the same method but certain employers started this practice of encashment to reduce their carried forwared burden.
So if your leave policy does not allow encashment of leave before the retirement or resignation then amount paid against encashment of leave at the time of retirement or resination does not attract EPF deductions.
I hope now you will be clear on the basic background of the clarification put forward by EPF authorities.
Regards
Anil Anand
From India, New Delhi
Yes encashment of leave attracts EPF. September communication in this regard by EPF authorities is also very clear. The main thing which needs to looked into is at what time the encashment of leave attracts EPF deductions.
Generally prevalent principals of Leave encashment are
1. Employee opts of the encashment of leave balance with him as per the company rules.
2. Companies give encashment against the leave at the close of leave year or Financial year.
There is another method of leave encashment which has been put forward correctly , that is , encashment of leave at the time of retirement.
Under the above first two clauses if encashment is being done it is true that it attracts EPF deductions. The case which went upto Supreme Court also is based on the above two clauses. Under the above two clauses leave encashment becomes a part of salary and it falls under the definition of wages as per section 2 of the EPF & MP act,1952.
Previously no such practice of encashing the leave was there. Only principal applicable was that it will be encashed at the time of resignation or retirement. Any amount paid as retirement benefits does not attract EPF contributions. Even the IncomeTax has also given exemption from deduction of TDS on encashment of leave at the time of retirement subject to certain limit. The principal ITax department followed was of retirement benefits.
EPF authorities were also following the same method but certain employers started this practice of encashment to reduce their carried forwared burden.
So if your leave policy does not allow encashment of leave before the retirement or resignation then amount paid against encashment of leave at the time of retirement or resination does not attract EPF deductions.
I hope now you will be clear on the basic background of the clarification put forward by EPF authorities.
Regards
Anil Anand
From India, New Delhi
Dear Mr Anil,
We have a policy in place wherein the employees can accumulate leaves up to 180 days and any accumulation beyond that date has to be encashed or availed or else the same will get lapsed. Likewise the employee should keep a minimum of 60 days while encashing. Because of this policy the employees are forced to encash their PL.
In view of the above, please let me know the following.
1) Whether Leave encashment at the time of Retirement attracts PF?
2) Whether Leave encashment at the time resignation attracts PF?
3) Whether Leave encashment at the time of separation (if company decides to reduce the staff) attracts PF? And how about Termination?
I believe the PF is always calculated on basic Salary including the DA and retaining allowance if any.
Best Regards
RAM
From India, Mumbai
We have a policy in place wherein the employees can accumulate leaves up to 180 days and any accumulation beyond that date has to be encashed or availed or else the same will get lapsed. Likewise the employee should keep a minimum of 60 days while encashing. Because of this policy the employees are forced to encash their PL.
In view of the above, please let me know the following.
1) Whether Leave encashment at the time of Retirement attracts PF?
2) Whether Leave encashment at the time resignation attracts PF?
3) Whether Leave encashment at the time of separation (if company decides to reduce the staff) attracts PF? And how about Termination?
I believe the PF is always calculated on basic Salary including the DA and retaining allowance if any.
Best Regards
RAM
From India, Mumbai
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Case - PF on leave encashment.doc
Circular on pf on leave encashment 5.5.08.pdf
PF clarification on leave encashment.jpg