EDLIS
From Indiapensions
The EPF&MP Act, 1952 provided for a provident fund and a family pension scheme for employees from 1971 onwards. However it was felt that problems arising out of early death of the employee were left unaddressed. In view of this, the Act was amended to incorporate an insurance scheme, called the Employees' Deposit Linked Insurance Scheme (EDLIS) in 1976. The objective of the scheme was to put in place a mechanism to provide employees' families with income security after the death of the member. It was funded through contributions by the employer and the Central Government with no contribution by the employee himself. The scheme has undergone several changes since its introduction. The Government no longer contributes to the scheme and the rates of benefits have also been changed many times. The contributions thus come only from the employers. A comprehensive administrative framework was set-up to ensure smooth functioning of the scheme.
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Applicability
EDLIS is applicable to all the factories and establishments to which the EPF&MA Act, 1952 applies. This includes both the exempt and unexempt establishments covered by the Act. All employees who join the Employees' Provident Fund are covered by the EDLIS.
Operational Framework of the EDLIS
Contributions
At the time of inception of EDLIS, contributions were made by both employer and the Central Government. The Act specified that the employer shall contribute not more than 1% of the aggregate of basic wages, dearness allowance including cash value of food concession and retaining allowance. In 1977 it was decided that the employer would contribute 0.5% of the above mentioned aggregate pay, subject to a ceiling of Rs.6500. The Central Government contributed 0.25% of the pay in respect of the covered employees. In 1996, an amendment was passed which ended the Government's contributions with respect to covered employees. The Government stopped contributing in 1998. The employers continued to contribute at the rate of 0.5% of pay. The time limit for the employer to remit his contributions to the Deposit-Linked Insurance Fund is within fifteen days of the close of every month. The Central Government must credit its contributions to the Fund as soon as possible after the close of every financial year. As of 2004-05, the total contributions received under the EDLI were Rs.191.62 crores.
Benefits
On the death of an employee who is a member of the Provident Fund, the selected nominee will get the existent accumulations in the PF account of the employee as well as an additional amount. This additional amount is equal to the average balance in the account of the deceased during the preceding twelve months or during the period of membership, whichever is less. Where the average balance exceeds Rs.35,000, the amount payable is Rs.35,000 plus 25% of the amount in excess of this figure. This total amount is subject to a ceiling of Rs.60,000. The lumpsum is tax free.
Investments
Before 1997, the corpus of the Deposit-Linked Insurance Fund was deposited with the Central government in the public account. It earned an interest of 7.5% before 1989. In 1989 the interest rate was increased to 8.5%. After 1997, the corpus already in the Fund was left in the public account, and new contributions were invested according to a specified pattern described below.
| Investment category | Percentage invested |
|---|---|
| Central Government Securities | Not less than 25% |
| State government securities and guaranteed securities | Not less than 25% |
| 7-Year National Savings Certificates or Post Office Time Deposits | Not exceeding 30% |
| Special Deposits | Not exceeding 20% |
The EDLIS portfolio stands at Rs.4375 crores as of 2004-05. The exposure of the EDLIS portfolio to various State Governments has been quite substantial.
Administration
The contributions towards administration and inspection charges have changed over the years through reforms. At the time of inception, the employer paid 0.1% while the Government contributed 0.05% of pay. In 1980 a proposal was passed which put in place inspection charges for employers of exempt establishments. This charge was 0.02% of pay. In 1988, administration charges were reduced from 0.1% to 0.01% for employers, and from 0.05% to 0.005% for the Government. These charges were then subject to a minimum of Rs.2 per month for the employer, and Rs.1 per month for the Government. The scheme is currently following this pattern of charges but the Government stopped contributing towards administration charges after 1998. As of the year 2000 employers of exempt establishments must pay inspection charges of 0.005% instead of the earlier 0.02%. These payments are deposited in the Insurance Fund Central Administration Account and are used to fund the expenditures involved in the running of the scheme. The EPFO collected Rs.8.66 crores on account of charges in 2004-05.
Exemption
Provisions for exemption from the EDLIS are listed under Section 17 of the EPF&MP Act 1952 along with Section 28(1) of EDLIS. An exemption from EDLIS is granted where the employees receive an insurance benefit without making any separate contribution or paying premium. It is necessary that this insurance benefit be greater than the insurance benefit provided under the EDLIS. An establishment exempted from the operation of the EDLIS is required to submit a monthly return to the RPFC. The establishment is also liable to pay inspection charges at the rate of 0.005% of the basic wages and dearness allowance, subject to a minimum of Re.1 per month. It does not have to pay any administration charges.
Defaults
Where an employer makes a default in the payment of any contribution or charges, the Central Provident Fund Commissioner may recover penalty from the employer at varying rates depending on the period of default. The penalty rates are as follows
| Less than 2 months default period | 17% |
| Between 2 to 4 months default period | 22% |
| Between 4 to 6 months default period | 27% |
| 6 months and above default period | 37% |
These damages may be waived or reduced in certain cases. If the management changes, or there is a merger or amalgamation, the damages may be waived completely. If the Board for Industrial and Financial Reconstruction recommends a waiver, a waiver up to 100% may be granted. In other cases, depending on the merit of the claims for
waiver, up to 50% of damages may be reduced. If an employer deducts or attempts to deduct contributions from the employees' remuneration, fails to submit a return, obstructs an official in the discharge of duty or fails to produce records for inspection, he is punishable with imprisonment up to one year, or a fine of up to Rs.4000, or both. In 2005, of a total of 14,748 prosecution cases, only 774 cases were disposed while the remaining 13,974 cases were still pending. The top five states as of 2004-05 in terms of prosecution cases lunched were Madhya Pradesh, Bihar, Maharashtra, Karnataka and Gujarat.
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