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Amendment in the rate of penal damages under Section 14B in case of default in the payment of any due amount under the EPF Act, 1952

The Ministry of Labour and Employment (“the Ministry”) has issued a notification that has significantly changed the rate of penal damages for delayed contributions or in the transfer of accumulations or payment of charges under the Employees’ Provident Fund Act, 1952 (“the EPF Act”). In an official Gazette Notification dated June 14, 2024, the Ministry has amended Para 32A of Employees’ Provident Fund Scheme, 1952 (“the EPF Scheme”), Para 5 of Employees’ Pension Scheme, 1995 (“the Pension Scheme”), and Para 8A of Employees’ Deposit Linked Insurance Scheme, 1976 (“the EDLI Scheme”). Pursuant to this, the rate of penal damages have been changed to 1% per month for outstanding contributions or delayed payments under all the Schemes. Previously, penalties under the EPF Scheme were calculated at varied rates depending on the period of delay, for e.g. 5% p.a. for delays of up to two months, 10% p.a. for delays between two to four months, 15% p.a. for delays between four to six months, and 25% p.a. for delays exceeding six months.

 While the rate of Interest on delayed payments under Section 7Q of the EPF Act remains the same (at 12% per annum), the amended rate of damages may reduce the financial implications in some cases. The total amount of damages still cannot exceed the total amount of arrears as mentioned in Section 14B of the EPF Act.

Additionally, the Ministry has also amended Table D of the Pension Scheme which provides for ‘Return of contribution on exit from employment’, and Table B of the Pension Scheme which provides for ‘factor for computation of past service benefit under ceased family pension scheme for existing members on exit from employment’. Therefore, the amendments will have potential implications in calculating the withdrawal benefit under the Pension Scheme and computation of past pension service as well.

These changes will have to be implemented by the Employees’ Provident Funds Organisation (“EPFO”) in their systems and processes. These amendments should promote ease of doing business by simplifying the computation of penal damages in cases where there is a default in payment of dues under the EPF Act and the schemes framed thereunder.