EPF

• What is PPF?
• PPF Tax Benefits 
• PPF Interest Rate 
• PPF Interest Rate Chart
• Opening PPF Account 
• Documents Required to Open a PPF Account 
• PPF Depositing Amount 
• Period and Lock-in Period 
• Withdrawal of Amount from PPF 
• Closure of PPF Account 
• List of Banks where PPF Account can be Opened 
• Extension of PPF Account Beyond 15 Years 
• Loan against PPF 
• FAQ’s on PPF Public Provident Fund

What is PPF?

Public Provident Fund (PPF) is a tax-free renowned scheme that is related to small-time savings. The interest earned in a Public Provident Fund is at an 8% tax-free interest rate. In terms of long-term investment, the Public Provident Fund is a crucial yet beneficial tool for individuals. Individuals enjoy benefits like tax exemption and tax-free interest under Section 80C as well as guaranteed returns.

PPF Tax Benefits

• An individual has to deposit Rs.500 minimum per year in his/her PPF account.
• A deposit of Rs.1,50,000 is the maximum limit in a PPF account. A deposit of Rs.70,000 was the earliest maximum limit in a PPF account but it changed to Rs.1,00,000 after 30th November 2011 i.e. from 1st December 2011. In August 2014, the new maximum limit for a deposit in a PPF account was set to Rs.1,50,000.
• According to Section 80C, the limit set for the amount invested by an individual who is eligible for deduction is under Rs.1,50,000. Insurance premiums and children’s school fees are some beneficial expenses under Section 80C as deductions. ELSS, 5-year FD’s, NSC, etc, are some of the approved investment mediums that come under Section 80C as deductions. (Rs.1,50,000 was the revised limit set in August 2014 under section 80C)
• As interest is tax-free, at the time of accrual or receipts, it is not taxable. Tax exemption is also applicable on Premature Withdrawal of PPF.

PPF Interest Rate

In the year 2016-17, the interest rate dropped down to 8.1%.

The calculation of interest is compounded on an annual basis. At the end of every financial year, interest is credited. The calculation of PPF is done monthly operating on the lowest balance from the end of the 5th day to the last day of the month, nevertheless the interest into the PPF account is only added back at the end of the financial year.

The Government decides the interest rates and hence, they are the same in all the banks and post offices. No TDS is deducted on the amount of a PPF as interest is exempted.

PPF Interest Rate Chart

PPF Interest rate chart is here as follows;

FINANCIAL YEAR	PPF INTEREST RATE
2000-01	11%
2001-02	9.5%
2002-03	9%
2003-04	8%
2004-05	8%
2005-06	8%
2006-07	8%
2007-08	8%
2008-09	8%
2009-10	8%
2010-11	8%
2011-12	8.6%
2012-13	8.8%
2013-14	8.7%
2014-15	8.7%
2015-16	8.7%
2016-17	8.1%

Opening PPF Account

• A PPF account can be opened in any authorized banks or post offices.
• A PPF account can be opened by minors under some guidelines.
• No law allows a PPF account to be opened in joint names.
• An individual cannot open a PPF account if he/she is a HUF or NRI. in some cases if an individual opens a PPF Account while he/she is a Resident of India but subsequently becomes an NRI, he/she is allowed to continue investing in his/her account.
• The account holder can appoint nominees/nominees. After the death of the account holder, the nominee cannot continue the account.
• The date of realization of the cheque in the Government account is considered as the date of opening of the account.
• A Power of attorney holder can neither open nor operate a PPF account.
• The grandparents cannot open a PPF account on behalf of their minor grandchildren.
• Only one PPF account is allowed to be opened by an individual.
• The account holder can transfer his/her PPF account from one post office or bank to another post office or bank.

Documents Required to Open a PPF Account

• A recent passport size photograph of the individual is required.
• Identity Proof copy of the individual along with the original to verify (Even PAN Card is accepted).
• Address Proof copy of the individual along with the original to verify.
• Correctly filled Account opening form by the individual for PPF.
• Payment in slip by the individual for PPF account.
• Nomination form for PPF correctly filled by the individual.

PPF Depositing Amount

• A deposit of Rs.1,50,000 is the maximum limit in a PPF account. A deposit of Rs.70,000 was the earliest maximum limit in a PPF account but it changed to Rs.1,00,000 after 30th November 2011 i.e. from 1st December 2011. In August 2014, the new maximum limit for a deposit in a PPF account was set to Rs.1,50,000.
• An individual has to deposit Rs.500 minimum per year in his/her PPF account. The amount can be deposited by both cash or cheque.
• An individual can make several installments in his/her PPF account in the manifold of Rs.50. There is no specific upper limit on the number of deposits and one can make as many installments as he/she wants but concerning the maximum limit in a PPF account. The rule of maximum limit on the number of installments that was 12 times a year, was removed and ruled out after November 2019 i.e. removed from December 2019.

Period and Lock-in Period

The investment duration is set for 15 years. In this case, the effective period adds up to 16 years i.e. the year of account opening and the 15 years addition. However, in case of an expired account, a 5-year extension period can be provided. A financial year basis format is regulated for a PPF i.e. from April 1st to March 31st. The interest on a PPF is credit at the end of the financial year.

Withdrawal of Amount from PPF

The investment duration is set for 15 years and hence, the amount can only be withdrawn after completion of its maturity period. In some cases, Premature Withdrawal is allowed but only from the year in which it was opened to the end of the 6th financial year. Only 50% of the total amount can be withdrawn prematurely but it depends upon the year in which the amount was prematurely withdrawn.

The PPF account before the completion of 15 years could not be closed unless the individual who opened the account was deceased. Only the nominee appointed by the individual for his/her PPF account who passed away has the authority to close the account by submitting all the required documents. Hence, the amount in the amount can only be withdrawn at the end of the maturity period but unaware of the rule, most of the banks and post offices do not have the details.

Closure of PPF Account

An individual can close his/her PPF account and withdraw the total sum of the amount to date, under certain circumstances. (On 1st April 2016, the new rule came into effect and was then modified in December 2016).

Conditions for closure of account are as follows;

• Excluding/After the year on which the account was opened, the PPF account should have been completed 5 years.
• In cases of serious illness or higher education of children, the premature closure of PPF accounts is permitted.
• It has to be confirmed by the banks whether the account holder, spouse, children, or parents are suffering from a serious illness or a life-threatening disease, and the documents like medical treatment reports, files, and maybe a verified legal bill are required.
• For higher education for children, the proper required documents should be submitted for premature closure of the PPF account. Documentation like fee bills and confirmation letters of admission by the concerned university either in India or abroad are obligatory.
• An individual needs to present and submit a copy of his/her passport or Income Tax Return in case of a change in residency status of the individual. This rule came into effect in 2019.

PPF Forms

• Form A – To open Public Provident Fund (PPF) Account
• Form B – To deposit amount in PPF Account, To repay loans taken against PPF account
• Form C – To make partial withdrawals from a PPF account
• Form D – To request a loan against a PPF account
• Form E – To add a nominee to a PPF account
• Form F – To make changes to PPF account nomination information
• Form G – To claim funds in a PPF account by a nominee
• Form H – To extend the maturity period of a PPF account

List of Banks where PPF Account can be Opened

• Andhra Bank
• Axis Bank
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• IDBI Bank
• ICICI Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab National Bank
• Punjab and Sind Bank
• State Bank of India (SBI)
• State Bank of Travancore
• State Bank of Hyderabad
• State Bank of Mysore
• State Bank of Bikaner and Jaipur
• State Bank of Patiala
• Union Bank of India
• United Bank of India
• Uco Bank
• Vijaya Bank

Extension of PPF Account Beyond 15 Years

The investment duration is set for 15 years. In this case, the investment period can be extended up to 5 years with or without further investments being made.

• No fresh investments made after maturity: the account holder will continue to enjoy the benefit of earning interest on the amount accrued and there is an ease in withdrawing funds freely once every financial year.
• Fresh investments made after maturity: in the case of fresh investments, the available balance in the account decides the interest calculated amount. Although, withdrawals are limited to only 60% of the amount in this case.

Loan against PPF

An individual is eligible to borrow from PPF between the 3rd and the 6th financial year of opening the PPF account. Loan facilities of the PPF are as follows;

• One can borrow from PPF between the 3rd and the 6th financial year of opening the PPF account.
• Exactly 25% of the amount can be taken up as a loan in the account of the individual at the end of the 2nd year immediately preceding the year in which the loan was applied. For example, if someone has applied for a loan from PPF in June 2014 at 25%, he/she will be eligible for a loan at 25% on 31st March 2014.
• The loan has to be repaid within 36 months and it can be repaid in total amount or two or more installments.
• The individual has to pay the interest amount within 2 months in installments after full repayment of the loan.
• Calculating the interest at 2% above the invested amount is commenced between the month following the month in which the loan was taken up to the last day of the month in which the last installment was repaid. (calculation of interest is done on the entire amount even-though if there were partial payments)
• An individual has to apply, fill and submit Form D along with the passbook of his/her account to get a loan.
• No security is required while availing of this loan and it has a lower interest rate as compared to availed personal loans from banks directly.

FAQ’s on PPF Public Provident Fund

Question 1.
An individual has a housing loan that exhausts his/her 80C exemption. Can he/she still invest in PPF(up to 1.5L) to get tax-free interest or will his/her interest be taxed or Is he/she not allowed to invest in PPF at all?

Answer:
The individual can invest in PPF up to a limit of Rs. 1,50,000 even if his/her total exemption amount exceeds 80C limits.

Question 2.
An individual’s PPF Account is reaching its maturity period on 10th March 2016, If he/she invests any amount in March this year, whether this investment will be eligible for Exemption under 80 C or Does he/she have to extend his/her account to be eligible?

Answer:
Yes, such investment will be eligible for deduction under section 80C whether the individual extends his/her account or not.

Question 3.
Can an individual’s Deposit in the PPF account be made by the income of the relevant year or Does he/she have to make it by his/her other investments or any previous savings?

Answer:
An individual can deposit the amount in PPF from any source, even from the loans he/she availed or his/her savings.

Question 4.
An individual contributed his funds to his wife’s and my son’s PPF account, can he enjoy this benefit under section 80C in his ITR?

Answer:
No, in such a case only the individual’s wife can take a deduction under section 80C. He can take a deduction in his account only when his son is minor but the total limit remains Rs. 1.5 lakhs.

Question 5.
Are tax deductions under section 80C and tax-free interest also available for extended accounts after 15 years?

Answer:
Yes, tax deductions and tax-free interest are available for the whole life of the PPF account.

Question 6.
Whether interest earned is treated as reinvestment like NSC and its deduction available?

Answer:
No, in PPF interest earned is exempt from tax and not considered as reinvestment.

Question 7.
Can an individual open two PPF accounts in two different banks?

Answer:
No, An individual can only open one PPF account at a time.

What Happens To EPS When You Transfer Your Old EPF To New Employer: EPF or Employee’s Provident Fund and EPS or Employee’s Pension Scheme are two terms coined under the Employee’s Provident Fund & Miscellaneous Provisions Act, 1952. The Employee’s Pension Scheme provides a saving opportunity for individuals to be used after their retirement. Under the Provident Fund Scheme, both the employer and the employee of a particular organisation contribute towards the fund. The entire amount of the contribution is accumulated and earns interest until the retirement of the individual.

Under the Employee’s Provident Fund, The employee’s contribution is 12% of his/her salary. The EPF account offers an attractive rate of interest which is 8.5% per annum. It is a saving instrument that applies to every individual working in an organisation registered under the Employee’s Provident Fund Organisation or EPFO. EPF is mandatory for all organisations where the workforce exceeds 20 employees.

When an employee changes organisation, he/she must transfer his/her EPF account from the old organisation to the new organisation to comply with the rules of the Employee’s Provident Fund. When the EPF is transferred from one organisation to another, it is mentioned in the Universal Account Number or UAN passbook issued by the EPFO. But, the passbook does not show any information relating to the transfer of EPS.

So, What happens to an EPS account during the transfer of EPF? Let us discuss this in detail in this article.

When One Can Transfer Old EPF Account To New Employer

The EPF is for employees who are contributing to the scheme under the Employee’s Provident Fund Organisation. Each employee registered under EPF is provided with a unique account number called Universal Account Number or UAN. The UAN remains the same throughout the employment life of an employee, and even if he changes organisation, still the UAN remains intact. The UAN can help access the details of the employee.

When an employee changes his/her working organisation, he/she can transfer the EPF account to the new employer by updating the UAN with the new employer. The transfer allows the employee to keep contributing to the fund without any hassle.

The EPF account can be transferred with the help of EPFO’s online facilities. The online facilities of the EPFO can only be accessed after completion of the KYC procedure with the EPFO. The claim to transfer the PF account should be attested by the employee’s current or previous employer. As soon as the EPF account is transferred, the old EPF balance will also be transferred to the new EPF account. One can also check their balance with the help of EPF Account Balance via Mobile Phone, SMS and so on.

What is EPS?

EPS is the abbreviated form of Employee’s Pension Scheme, and it is initiated by the government to ensure that every employee is provided with a pension after his/her retirement. The EPF and EPS go hand in hand, and each employee who contributes to the EPF is eligible for EPS. The employer provides 8.33% of the salary of an employee towards the EPS.

Here are some of the Key feature of EPS:

• EPS offers an opportunity to avail lifelong pension to each and every employee contributing to the EPF.
• As per the EPS scheme, the employer has to contribute 8.33% of the actual salary or ₹6,500 or ₹15,000, whichever is the minimum. If an employee’s contribution is less in terms of amount or number of years, then his/her pension amount will be less.
• EPS contribution does not receive any interest as the EPF fund does.
• An employee can only avail of the pension amount after completing 10 years of service or after attaining 58 years of age.
• An early withdrawal of pension amount is available to employee after attaining 50 years of age, but it is subjected to a 4% discount factor.

What Happens To EPS During PF Transfer

We all know that when an employee changes his/her organisation, he/she has to validate the UAN with the new employer, which would allow him/her to transfer the EPF account from the old organisation to the new.  Now, the big question is, what happens to EPS during the transfer of EPF?

So, when an individual changes his/her job, he transfers the amount of PF from the old to the new organisation, but the pension amount that is not transferred remains intact with the old member ID. But, the number of years an individual has worked can be tracked easily with the help of service details, which will again help him/her withdraw the pension amount. Here, the EPF is consolidated into one account but, the EPS amount is reflected in the passbook of the UAN.

Annexure K And Its Relation With EPS

When a person searches the UAN helpdesk for EPS transfer, he/she finds information displaying, “While Transferring PF from One Establishment to Another, the service detail information is furnished to the receiving PF office in the Annexure K which will be used to calculate the pension amount.” So what is Annexure K?

Annexure K is a document that contains all the details of an EPF account of an employee. It is furnished within the regional EPF offices, with the employee’s transfer from one organisation to another.

Any employee can obtain Annexure K by following the procedure mentioned below:

• Go to http://epfigms.gov.in/
• Click on Register Grievance to register a complaint of EPF. You can easily obtain Annexure K.

When Can A Person Withdraw The Pension Amount From EPS?

An employee registered under the EPFO is eligible to receive the pension amount only after completing 10 years of service. However, the employee must be 50 years or 58 years of age to withdraw the pension amount. If an employee wants to withdraw the pension at an early stage, he/she can do so after attaining 50 years of age but before attaining 58 years of age. The early withdrawal of pension amount is subjected to a 4% discount rate.

In case an employee changes his/her organisation, and the present organisation is not registered under EPFO, then he/she can apply for a scheme certificate under the EPFO, which will be helpful to them in the future.

An EPS scheme certificate is a document issued to every employee registered under the EPFO, which contains their service details. It also contains the family details of an employee, which facilitates easy identification of the nominee to the pension amount after the employee’s death.

What Is A Provident Fund?

A provident fund is a compulsory retirement savings scheme that is managed by the Government. The Employees’ Provident Fund Organisation is responsible for the regulation and supervision of pension and provident funds in India.

It was set up with the motive of providing financial support to workers and their dependents in case of premature death or after retirement. The EPFO issues a twelve-digit number called the Universal Account Number to employees who are contributing to EPF.

Now the problem is how an employee will know whether the employer is contributing to his/her EPF contribution. We will read in this article the steps that an employee can follow if the employer is found not depositing to EPFO or trust. It has been found that several companies deduct contributions towards provident funds but do not deposit the contribution to the trustor EPFO.

According to the employee’s perception, he/she knows that the benefit will be provided to him/her on resigning or retirement, but hell breaks loose when they get to know that the employer was not depositing the contribution.

There are two parts of employee contribution to provident fund: one is contributed by the employee, and another is contributed by the employer.

The employee contribution is around 10 or 12 percent of basic salary. For women employees, it is 8 percent of basic salary for the initial three years and converts to 10 or 12 percent of basic salary after that.

The employer also contributes an equal amount of 10 or 12 percent of the basic salary that the employee contributes.

Ways To Check Whether The Employer Is Depositing Employee’s Contribution To EPFO

There are specific ways to check online whether the employer is depositing EPF contributions to EPFO. Some of the methods are given below:

Through The Official EPFO Website

Employees can check the Provident Fund website to find out the monthly provident fund deposit by the company. Individuals can verify through this information whether their contribution is being deposited by the employer to EPFO. But it must be noted that the actual money of each individual is not available. The total money deposited by the employer is recorded in the books. This contribution data is available only for those companies who are depositing the EPF money by availing the E-Challan and Receipt (ECR) facility. One can check this by visiting the Establishment Information Search at the EPF website.

The steps are given below:

• Details of deposits can be searched through the establishment code numbers (7 digits) or through the establishment name. E.g., if you search ‘Infosys’ you will get records of twenty-four different establishments.
• Search your establishment name and click on the ‘View Details’.
• After scrolling down, click on the ‘View Payment Details’.
• Look for the Key icon towards the end of the row.
• Now click on the “Payment” icon on the second row, you will get all the records of your establishment’s EPF deposits done electronically. Details like ‘Date of Credit’ to EPFO, the ‘No. of Employees’ whose money has been deposited by the employer, and the total ‘Amount’ credited will be shown.

Through SMS Facility To Registered UAN Holders: Individuals can register the Universal Account Number so that updates regarding deposits by the employer are sent to the employee through SMS alerts. This is similar to SMS alerts from banks whenever an individual’s bank account is debited or credited. But some institutions are exempted, and therefore employees of such institutions cannot avail of such facility. The format of the SMS from EPFO is as follows: ‘Dear member (UAN <10 digit UAN number>), Rs XXXX for 03/2021 has been credited in your EPF account. For details, download m-epf mobile app from Google Play Store.

Through E-passbook: E-passbook maintains the transaction records of an individual’s EPF account. It records and maintains any amount that is deposited by the employer on behalf of the employee. The passbook generally gets updated in batches, and it is outdated most of the time. An individual who has recently opened an EPF account will not find any records available in the passbook.

Steps An Employee Can Take If The Employer Fails To Deposit The EPF Contribution To EPFO

There are several companies that deduct contributions towards provident funds from the employees but fail to deposit such amounts with the EPFO or their trust. The employees believe that they are contributing to the provident fund and can have the amount after retirement or after resigning from the job. But later on, they get to know that the employer was not depositing the money, and that’s when the problem arises.

Employees do not know how to handle such situations or what to do when such situation arises. They don’t know whom to complain about such defaulting employer.

It is a legal offense to deduct from salary contributions for provident fund and not deposit the same with the EPFO or their trust. The financial problems of the company is not an excuse for failing to pay the contributions of the employees to EPFO.

When the company deposits the employer’s and employee’s contribution regularly to the provident fund office, it is controlled by the provident fund office. The employer should be held responsible for failure of payment and should be held liable to pay.

An employee can claim a copy of Form 12 to know whether the employer is depositing the provident fund contribution and the details of money deducted. The Employers are required to send this form to EPFO by the end of each month. But it is often seen that employers decline to furnish Form 12 to employees.

The employees can also file a Right to Information application to the regional provident fund office when the employer refuses to provide the details of provident fund contributions. Employer code and the employee’s provident fund account number is to be mentioned while filing such application.

The following can be done if the employee finds that the employer is not contributing:

• The issue can be addressed to the provident fund department by informing them of the details in their official email id. Individuals can also furnish a written complaint to the regional provident fund office and can get suitable contact details at the official EPFO site.
• Employees can file a complaint with the local police station regarding non-payment of provident fund contributions on the part of the employer.
• Employees can also file a complaint to the Chief Vigilance Officer appointed by the Ministry of Labour.
• Employees can also approach the regional provident fund inspector and file a complaint about action against the employer. It is to be noted that for any complaints regarding the provident fund, the employees need to furnish their salary slips that show the deduction for provident fund, provident fund registration number, employer’s name and address if possible.

According to EPFO, if a company is non-compliant with its provident fund deposits, the company has to pay the dues along with penalty interest, depending on the tenure of delayed payment. They are as follows:

• If the delay of payment is for less than two months, there will be a yearly interest payment of five percent over and above the amount payable for the number of days of delay in payment.
• If the delay of payment is for two months and above but not more than four months, ten percent interest will be charged yearly over and above the amount due for payment.
• If the delay of payment is for four months and above but not more than six months, then fifteen percent yearly interest will be charged above the due amount.
• If the delay is for six months and above, then twenty-five percent interest will be charged above the amount due for payment.

Contribution To EPF While Employer Claims Financial Problems

The Company Auditor who audits financial books of accounts of the company has to make sure that the company is depositing the provident fund contributions to the EPFO. Under Companies Audit Report’s Order (CARO), 2003, the auditor has to particularly state whether the company is regularly depositing provident fund due to the EPFO authority and, if not, the amount of arrears of provident fund shall be reported by the auditor. The auditor also has to take into account the period for which the payment of dues has not been made.

The CARO, 2003 requires the auditor to particularly state if the undisputed dues of the provident fund have been deposited regularly with the EPFO authorities. The auditor should report if the payment is not made, the amount of the arrears of provident fund on the last day of the financial year that is concerned for a period of more than six months from the date they became payable.

The companies who are not regular in their payment of provident funds provide excuses for the unstable economic condition of the company. Such excuses are not entertained for the failure of payment in the provident fund. The auditor should include such an amount of arrears in their reports.

Withdrawal Of Provident Fund While Company Claims Financial Problems

The Provident Fund withdrawal form is often ignored by employers citing reasons for financial problems. But employees need to know that provident fund withdrawal has nothing to do with the company’s financial crisis. The employer, after deducting the provident fund contribution from the employee’s salary, must deposit the amount to EPFO.

After the employer receives the provident fund withdrawal form from the employee, the employer must submit the provident fund withdrawal forms to the concerned provident fund office within five days of receiving the form.

The acknowledgement slip issued from the provident fund office should be passed on to the employee. Effective communication modes must be adopted to carry forward the acknowledgement slip to the employee through courier, by post, email, or through SMS.

It is advised to keep documental evidence of submitting provident fund forms to companies and an acknowledgement from the company of receiving the said form. This should be done to counter later claims from companies of untraceable forms or claims of not receiving the forms.

When The Employer Or The Company Becomes Insolvent

According to Section 11 of the Employees’ Provident Fund and Miscellaneous Provisions Act 1952, when the employer is deemed as insolvent or if the employer is a company and an order of winding up of the company has been made, the arrear amount from the employer, whether in respect of the employer’s contribution or employee’s contribution must be included among the liabilities that are to be paid on a priority basis like all other liabilities by selling the assets of the company or the property of the insolvent.

In other words, such nature of payment is considered as preferential payment over others, provided the liability accrued thereof has been acknowledged before the order of winding up is made or is regarded as insolvent.

How to Make Withdrawals in a Public Provident Fund Account (PPF): Public Provident Fund (PPF) is a tax-free renowned scheme that is related to small-time savings. The interest earned in a Public Provident Fund is at an 8% tax-free interest rate. In terms of long-term investment, the Public Provident Fund is a crucial yet beneficial tool for individuals. The Features of a Public Provident Fund are as follows;

• An individual has to deposit Rs.500 minimum per year in his/her PPF account.
• A deposit of Rs.1,50,000 is the maximum limit in a PPF account. A deposit of Rs.70,000 was the earliest maximum limit in a PPF account but it changed to Rs.1,00,000 after 30th November 2011 i.e. from 1st December 2011. In August 2014, the new maximum limit for a deposit in a PPF account was set to Rs.1,50,000.
• An individual can make several installments in his/her PPF account in the manifold of Rs.50. There is no specific upper limit on the number of deposits and one can make as many installments as he/she wants but concerning the maximum limit in a PPF account. The rule of maximum limit on the number of installments that was 12 times a year, was removed and ruled out after November 2019 i.e. removed from December 2019.
• The investment duration is set for 15 years. In this case, the effective period adds up to 16 years i.e. the year of account opening and the 15 years addition.
• A financial year basis format is regulated for a PPF i.e. from April 1st to March 31st. The interest on a PPF is credit at the end of the financial year.
• The calculation of PPF is done monthly operating on the lowest balance from the end of the 5th day to the last day of the month, nevertheless the interest into the PPF account is only added back at the end of the financial year.
• There is no guarantee of the interest in the PPF account even though the interest earned is fixed for one financial year in the PPF. The actual benchmark for a PPF is 0.25% higher than the average government bond yield after the 10-year government bond yield.
• According to Section 80C, the limit set for the amount invested by an individual who is eligible for deduction is under Rs.1,50,000. Insurance premiums and children’s school fees are some beneficial expenses under Section 80C as deductions. ELSS, 5-year FD’s, NSC, etc, are some of the approved investment mediums that come under Section 80C as deductions. (Rs.1,50,000 was the revised limit set in August 2014 under section 80C)
• Section 10(11) of the Income Tax Act states that interest earned on the investment is exempted from the tax.
• There is no option to open a joint account with another individual and the account can only be under one individual’s name.

Close PPF Account Before the Maturity Period

The process to close the PPF account earlier. The PPF account, before 1st April 2011, before the completion of 15 years could not be closed unless the individual who opened the account was deceased. Only the nominee appointed by the individual for his/her PPF account who passed away has the authority to close the account by submitting all the required documents. Hence, the amount in the amount can only be withdrawn at the end of the maturity period but unaware of the rule, most of the banks and post offices do not have the details.

Time to Close PPF account

An individual can close his/her PPF account and withdraw the total sum of the amount to date, under certain circumstances. (On 1st April 2016, the new rule came into effect and then modified in December 2016)

Conditions for Premature Closure of PPF Account

• Excluding/After the year on which the account was opened, the PPF account should have completed 5 years.
• In cases of serious illness or higher education of children, the premature closure of PPF accounts is permitted.
• It has to be confirmed by the banks whether the account holder, spouse, children, or parents are suffering from a serious illness or a life-threatening disease, and the documents like medical treatment reports, files, and maybe a verified legal bill are required.
• For higher education for children, the proper required documents should be submitted for premature closure of the PPF account. Documentation like fee bills and confirmation letters of admission by the concerned university either in India or abroad are obligatory.
• An individual needs to present and submit a copy of his/her passport or Income Tax Return in case of change in residency status of the individual. This rule came into effect in 2019.

Penalty for Closing PPF Account

An individual going for premature closure of PPF has to pay the penalty of 1% less interest in all the previous years.

Form for Premature Closure of PPF Account

• New Form: A new form named Form 5 was introduced in December 2019. The sample of the new form is provided as follows;
• Old Form: An individual has to visit his/her concerned bank or post office branch and submit the PPF account closure form there. The sample of the old form, Form SB-7A, is provided as follows;

Alternatives to Closing PPF Account

PPF is considered to be one of the most beneficial schemes for long-term investment as one can gain from a triple tax benefit. A loan from PPF and partial withdrawal from PPF are the two aspects that an individual should consider before the premature closure of his/her PPF account.

Loan Facility in PPF Account

An individual is eligible to borrow from PPF between the 3rd and the 6th financial year of opening the PPF account. Loan facilities of the PPF are as follows;

• One can borrow from PPF between the 3rd and the 6th financial year of opening the PPF account.
• Exactly 25% of the amount can be taken up as a loan in the account of the individual at the end of the 2nd year immediately preceding the year in which the loan was applied. For example, if someone has applied for a loan from PPF in June 2014 at 25%, he/she will be eligible for a loan at 25% on 31st March 2014.
• The loan has to be repaid within 36 months and it can be repaid in total amount or two or more installments.
• An individual has to apply, fill and submit Form D along with the passbook of his/her account to get a loan.

Partial Withdrawals in PPF Account Before The Extension of PPF Account

In case of partial withdrawals before the extension of the PPF account, if the individual has not extended the PPF yet, he/she can make partial withdrawals from his/her PPF account after the expiry of 5 years from the end of the financial year in which the investment was made. So, from this, we can conclude that partial withdrawals from PPF accounts can be made from the 7th year. Conditions for premature withdrawals are as follows;

• If the individual has not extended the PPF yet, he/she can make partial withdrawals from his/her PPF account after the expiry of 5 years from the end of the financial year in which the investment was made.
• There is a limit set on withdrawals made per year which is only once a year.
• An individual is eligible to withdraw up to 50% of his/her account balance at the end of the 4th year immediately preceding the year in which the request was made, or balance on last year, whichever is lower.
• An individual has to apply, fill and submit Form C song with the passbook of his/her account to make withdrawals.
• In case of withdrawal from a minor’s account, a declaration from his/her guardian is required to find out whether it is for the use and benefit of the minor or not.

Partial Withdrawals in PPF Account After The Extension of PPF Account

In case of Partial withdrawals in PPF account after the extension of PPF account, if the individual has extended his/her PPF account (after account completion i.e.15 years) by 5 years, then;

There is a limit set on withdrawals made per year which is only once in a financial year.

After 60% of the credit balance, withdrawals on the total amount are then restricted at the start of the extension block of 5 years.

The individual has to apply, fill and submit Form C song with the passbook of his/her account to make withdrawals.

Shifting NPS Account Sectors in NPS, Form ISS: NPS is considered a pension system meant to provide financial security to a person after his/her retirement. An employee can maintain only one NPS account on his/her entire service career irrespective of change in employers. Permanent Retirement Account Number is a unique identification number that is allotted to each NPS subscriber. PRAN or the NPS account is considered to be portable and can be moved if the employee is shifting from the government sector to the private sector. A person can have only one PRAN, just like he/she has only one PAN. This PRAN can be used in any sector, including government and private.

Changing the employer doesn’t affect the PRAN of the employees; thus, they can use the old account even if they are joining a new job. They can shift from one sector to another easily, from one state government service to another state government service, from one central government service to corporate and vice versa, etc.  So in case an employee has opened his/her PRAN account as a government employee and quits his/her job, he /she can still use this account under all citizen’s model by contributing a total of 1000/- in order to keep the account active.

Various Sectors or Models of NPS

Let’s discuss the different models or sectors of NPS. Currently, NPS and APY together have more than one crore subscribers with a total AUM (Asset Under Management) of more than 1 lakh crore.

Government Sector

• Central Government: On 1 Jan 2004, the Government released a statement making NPS compulsory for government employees (except armed forces). The statement states that every government employee is bound to make a contribution to the National Pension Scheme.
• State Government: NPS is applicable for all State Government employees, State Autonomous Bodies who have joined their government services after the date of notification released by their respective State Governments. Gradually, all State Governments started considering the NPS.

Corporate Sector

PFRDA (Pension Fund Regulatory Authority) launched the National Pension Scheme in December 2011. NPS is just like a Provident Fund as it is meant for securing the future of the employees. The biggest advantage of NPS is the tax benefit scheme which allows up to 10% deduction on the Basic Pay+ DA of the employer’s contribution on behalf of the employee. Even the employer can avail of tax benefit from NPS by showing this contribution as an expense in the profit and loss account. The NPS return rate for the corporate sector for the 1st year is around 13.59%.

All Citizens Sector

NPS is available for every citizen of India from 1 May 2009 on a voluntary basis. All Indian citizens who come between the age of 18 and 60 years as of the date of submission of application to the point of Presence are eligible to be a subscriber of NPS.

NPS Lite or APY or UOS( Unorganized sector)

NPS Lite or The Swavalamban Scheme was launched in order to provide retirement benefits to the unorganized sector. Under this scheme, the Government of India pledges to contribute 1000 per year; this will continue for five years for those who have a Swavalamban account, provided that the contribution states between 1000/- and 12000/- per year. The people who are forming these low-income groups are represented through an organization known as aggregators.

What is a Nodal Officer of NPS?

PFRDA has appointed NSDL (National Securities Depository Limited)  as the Central Record Keeping Agency (CRA) and entitled them with the responsibility to maintain the records of contribution and its deployment in different pension fund schemes that the employees have applied for. The records of each employee’s contribution will be recorded in an account which is known as Permanent Retirement Account. This account can be identified using PRAN.

The nodal office is responsible for interacting with the CRA on behalf of the NPS subscriber. Government offices like DTO and DDO act as nodal offices. CRA-FC is considered a facilitation center appointed by the CRA and is responsible for facilitating nodal offices to submit the application for alloting PRAN to different employees and submitting an application for change in a signature subscriber’s photograph.

• Nodal offices which come under the Central Government include the Principal Accounts Office (PrAO), Pay and Accounts Office (PAO), and Drawing & Disbursing Office (DDO).
• Nodal offices which come under the State Government include the Directorate of Treasuries and Accounts (DTA), District Treasury Offices (DTO), and Drawing & Disbursing Office (DDO).

Shifting NPS Using Form ISS

An NPS subscriber has the right to shift from one sector to another sector or from one office to another office with the same PRAN. When one is planning to shift his/her NPS, he/she needs to submit ISS Form in order to begin the shifting process. The steps that are involved in submitting this form is as follows:

• One has to fill in the details regarding the shift he/she is going to make. Whether the shift is from the state government to state government or government to corporate had to be mentioned in the form.
• The appropriate documents must get attached to the form.
• The form with the required documents has to be submitted to the target POP-SP.
• They will provide the subscriber with a stamped acknowledgment.
• Once the details are verified by the authorities, the change will get notified to the subscriber.

Before going forward with the shifting, please note

• The PRAN of the subscriber should be active.
• Details such as PRAN number, employer information, and salary information must be recorded in a similar way as it was recorded in NPS.

Shifting NPS Form ISS (Inter Sector Shift)

The details that are to be given in the ISS Form are as follows:

• Name and address of the subscriber, details of the PRAN, details of the existing and new POSP.
• One must ensure that the PRAN details are correct, and he/she must attach a copy of the PRAN card also.
• One must provide the details of the DDO/POP-SP to which the PRAN is associated.
• The subscriber must also provide the details of the DDO/POP-SP to which the PRAN will get associated once the shifting is done.
• The sector section for ‘Existing PRAN association’ and ‘Target PRAN association’ is considered to be the same when the subscriber is meant to shift from one state government to another state government.

Subscriber from every sector is required to fill up the declaration part in the ISS form. After successful verification of the change request form, the POP-SP accepts the declaration form, after which they will issue a 17 digit receipt number as an acknowledgment to the subscriber.

The nomenclature of the receipt is as follows:

• First, 2 digits starting from the left – Type of request (19 for Subscriber shifting)
• Next 7 digits – Registration Number of POP-SP e.g., 6000002
• Next 8 digits – Running sequence number eg.00000001
• For Example, 17 digit receipt number will be “19600000200000001

It is the duty of the POP-SP to hand over the acknowledgment receipt to the subscriber to show that they have accepted their request. The POP-SP must affix the seal, as well as the user, must sign the acknowledgment before making it available to the subscriber.

On Maturity of PPF Account: Individuals, particularly those who are not salaried workers, may benefit from the Public Provident Fund as a medium for long-term savings and as a means of preparing for retirement. PPFs are long-term investments that mature 15 years after the end of the financial year in which they were first purchased. This article has a brief description of PPF and what happens when a PPF account reaches maturity.

PPF’s Maturity

The maturity of a Public Provident Fund (PPF) account is 15 years, but the calculation begins at the financial year’s end in which the account was opened. For example, if you get a PPF account opened on July 15, 2000, your 15-year term would begin on March 31, 2001, at the end of the fiscal year 2000-2001. The lock will be in place until March 31 2015, and you will be able to withdraw only after April 1, 2016.

After 15 years, you can choose between two options:

1. Withdrawing the maturity account and then closing the account, OR
2. Keep the current PPF account open for another 5-year block duration. After the first five years have passed, you will continue to extend the PPF account for another five years. There is no limit to the number of extensions that can be created.

Let’s say your PPF account’s term is set to expire on March 31, 2015. The account balance at the time was about Rs 10 lakh. You can now choose to keep the account open for another five years (until March 31, 2020) and continue to invest as you have been. However, you can only withdraw Rs 6 lakh (60 percent of the balance on your credit on March 31, 2015) over five years until March 2020.

E.g., if you started a PPF account in the fiscal year 1999-2000, it will mature on April 1, 2015. You have the option to either cash in your PPF balance or extend the maturity of your PPF for another five years until 2020 from April 1, 2015, to March 31, 2016. You will continue to add to your PPF account after 2020, for example, to the years 2025, 2030, and so on.

Note: Once your PPF account expires, you can open a new one, but you’ll have to start over.

Continuation of PPF

You have two options for keeping your PPF account open:

• Keep going without making any added contributions – You can choose to receive the tax-free interest but not contribute any additional funds, OR
• Keep going while making the added contributions – The rules for contributing to the extended account remain the same as they were during the 15-year cycle, i.e., you can demand 80C deductions on amounts invested in PPF and invest up to the maximum limit (which is 1.5 lakh (150,000) for FY 2014-15 and FY 2015-16). Form H must be completed and submitted by the investor.

Online, you can download FormH in pdf format. Please keep in mind that Form H must be completed and submitted within one year of the maturity date. So, if your PPF matured on April 1, 2012, you must fill out Form H to continue your PPF account with a subscription between April 1, 2012, and March 31, 2013. Form H must be completed and sent to the post office or bank where the account is kept. You must enter your PPF account number and the date the 15-year period ended. So, if you began your PPF account in FY 1999-2000, say in November 1999 or February 2000, and your PPF matured 15 years later on 31-Mar-2000, you could write 1-Apr-2015.

Please Note The Following

• Filling out Form H within one year of the account’s maturity date is the only way to expand the PPF account with a subscription.
• To renew, you must first complete Form H and then deposit for that year.
• The choice for no more contribution is the default, which means that if you do not choose the option with a subscription within one year of the maturity period’s conclusion, the second option without a subscription will be applied automatically.
• It is impossible to reverse a decision taken for five years.
• The subscriber cannot switch to a with-contributions extension after an account has been continued without contribution for any year.
• The interest gained on a PPF for a more extended period is also tax-free.

Liquidity for the Extension Period

Unlike the initial duration of the Public Provident Fund Account, when loans were only available after the third year, and partial withdrawals were only permitted after the sixth year, the extension period of the PPF is more liquid.

If the loan is extended without a contribution, that amount may be removed, but only once per year. If the balance is entirely removed, it will continue to earn interest.

If the loan is extended with contributions, you can withdraw up to 60% of the balance at the start of each extended period (block of five years).

Assume the term of your PPF account expired on April 1, 2012. The account balance at the time was about Rs 15 lakh. You can now choose to keep the account open for another five years (until March 31, 2016) and continue to invest as you have been. However, you can only withdraw Rs 9 lakh (60 percent of the balance on your credit on March 31, 2011) over five years until March 2016.

Closing or Extending The Account

Is it better to close this account and open a new one or keep it open for another five years?

I propose extending the contract for another five years. Even if you close this account and open a new one, the maturity will be delayed for another 15 years. You also gain more money if you prolong the account so there is more balance.

Non-resident Indians and Extension

The extension benefit does not apply to NRIs who opened their account before their residency status changed. Returning to PPF Basics, NRIs are unable to open a PPF account. If a resident already has a PPF account and then becomes an NRI, he will continue to invest in the PPF until the initial period (the first 15 years) expires. The PPF account will then be unable to be extended and will have to be liquidated.

The Bottom Line

After 15 years from the end of the financial year in which the initial subscription was made, you will close your Public Provident Fund account. You may also choose to extend the PPF for a 5-year block with or without a subscription.

Salary, Allowances, Dearness Allowance, Government Salary and Pay Commission: In this article, we discuss the various parts of salary, what are the various kinds of allowances, how is the salary calculated, what does dearness allowances simply, what is the salary of a government employee and what is the 7^th pay commission?

Salary Structure in India

Organisations pay salaries to their employees in exchange for the services rendered by them. The salary paid to employees comprises several different components, such as the basic salary, allowance, perquisites of one’s salary, etc.

The salary structure of an employee is the details of the salary being offered according to the breakup of the various components which constitute the compensation.

Any changes made to the salary structure, i.e., among the elements, can significantly impact what the employee does, like the kind of tax exemptions claimed. Knowing what makes up the salary earned is essential since it helps to keep the employee informed about how much goes into the forced savings and what kind of tax exemptions need to be claimed.

Components of Salary Structure

A few of the components of salary structure include:

Basic Salary

The base income of an employee is their basic salary, comprising 35-50 % of the total salary. It is a fixed amount paid before any reductions or increases due to bonus, overtime or allowances.

Basic salary is decided on the basis of the employee’s resignation and the industry in which they are working. Most of the other components, such as allowances, are on the basis of the basic salary. This amount is entirely taxable.

Allowances

This is an amount payable to employees during their regular job duty. It might be fully or partially taxable, depending on the type it is. According to the company’s policies, the allowances provided and the limits on it will vary from company to company.

• Dearness Allowance – It is a particular percentage of one’s basic salary paid to them, with the aim of mitigating inflation. The government pays it to the employees of the public sector and pensioners at the same.
• House Rent Allowance – The house rent allowance is that component of the salary paid to the employees for meeting the cost of renting a house. It offers tax benefits to employees for the sum that they are going to pay towards their accommodation each year. Salaried people residing in rented homes can also claim this exemption and reduce the tax liability.
• Conveyance Allowance – The conveyance allowance, also referred to as the transport allowance, is the kind of allowance offered by employers to the employees for the compensation for their travel expense to and from their residence and the workplace. Please Note – In the Union Budget of 2018, a standard deduction of Rs. 40,000 has been introduced instead of allowances such as transport (Rs 19,200) and medical (Rs 15,000).
• Leave Travel Allowance – The Leave travel allowance is allowed for tax exemption. Employers offer it to their employees to cover the latter’s travel expense when they are on leave from work. The amount that is paid as leave travel allowance is exempt from tax under Section 10(5) of the Income Tax Act, 1961. The leave travel allowance only covers the domestic travels, and the mode of travel has to be either air, railway or public transport.
• Medical Allowance – Medical allowances are a fixed allowance paid to the employees of an organization for meeting their medical expenditure. Please Note – In the Union Budget of 2018, a standard deduction of Rs. 40,000 has been introduced instead of allowances such as transport (Rs 19,200) and medical (Rs 15,000).
• Books and Periodicals Allowance – The books and periodical allowance is the type of allowance which is given to employees for helping them in meeting the expenses associated with the purchase of periodicals, books and newspapers. It is tax-exempt for the extent of the actual expenditure incurred to the purchase of periodicals and books.

Gratuity

Gratuity can be defined as the lump sum benefit paid by employers to the employees who are retiring from the organization. This is only payable for those who have completed 5 or more years in the company. This gratuity amount is paid ingratitude of the services that the individual has rendered during the period of their employment.

According to the Act of 1972, Payment of Gratuity is calculated as 4.81% of an employee’s basic pay. Most companies with a workforce of 10 or more employees come under this Act.

Employee Provident Fund

The Employee Provident Fund is a benefits scheme for the employee where the investments are made by the employer and the employee both every month. It is a savings platform aiding employees to save a portion of their salary each month, from which withdrawals could be made following a month from the date of termination of service or on retirement.

At least 12% of the employee’s basic salary is automatically going to be deducted and goes to the Employee Provident Fund each month. Employees Provident Fund Organization (EPFO) maintains the contributions.

Professional Tax

The professional tax is a tax being imposed on the income that is earned by the salaried professionals, including the doctors, chartered accountants, and lawyers, etc., by the state government. Different states have various methods of calculating professional tax.

The maximum amount that needs to be paid in a year is Rs. 2,500. Employers deduct professional tax at prescribed rates from the salary paid to employees and spend it on their behalf of the State Government. The collected revenue is used for the Employment Guarantee Scheme and the Employment Guarantee Fund.

Perquisites

Perquisites, also known as the fringe benefits, benefit some employees because to their official position. These are usually non-cash benefits given in addition to the cash salary. Some perquisites include providing a car for personal use or rent-free accommodation, payments of premium on any personal accident policy, etc. The monetary value of the perquisites gets added to the salary, and the employee pays tax on them.

ESIC

If a firm has 10 or more employees (20 in Maharashtra and Chandigarh), who have a gross salary below the amount of Rs. 21,000 each month, then the employer is needed to avail the ESIC scheme for employees like this. The employer’s contribution is going to be 4.75% of their gross salary, whereas the employee’s contribution is going to be 1.75% of the gross wage.

What is Dearness Allowance?

The government of India pays Dearness Allowance to the employees and a pensioner to offset the impact of inflation. The adequate salary of government employees requires constant enhancement for helping them manage the increasing prices.

Despite all the actions that the Indian government has undertaken for controlling the inflation rate, only partial success could be achieved as the prices move in accordance with the market. Therefore, it becomes crucial for the government to shield its employees from the disadvantageous effects of inflation.

As the inflation impact varies according to the employee’s location, the dearness allowance is going to be calculated accordingly. Thus, DA differs from employee to employee depending on its presence in the – urban, semi-urban or rural sectors.

How is Dearness Allowance Calculated?

As DA is offered to employees for protecting against the price rise in a specific financial year, it is calculated every year twice – in the months of January and July. The formula for calculating the dearness allowance was changed in the year 2006 by the Government.

Presently, DA is calculated according to the following procedure: For the Central Government employees (CGE) % of Dearness Allowances = {(Average of All India Consumer Price Index (Base year of -2001 =100) for the previous 12 months -115.76)/115.76} x 100

For employees of the Central Public Sector (CPS) % of DA = {(Average of the All-India Consumer Price Index (Base year of -2001 =100) for the previous three months -126.33)/126.33} x 100

Treatment of the Dearness Allowance under the Income Tax

According to the latest updates, DA is fully taxable for the salaried employees. Suppose the employee has been provided with an unfurnished rent-free accommodation.

In that case, it becomes part of the salary up to which forms the retirement benefit salary for the employee, provided that all the other pre-conditions are being met. India’s income tax rules need the DA component to be introduced separately in the returns which have been filed.

Types of Dearness Allowance

For calculating, DA is divided into two different parts: Industrial Dearness Allowance (IDA) and Variable Dearness Allowance (VDA).

The Industrial Dearness Allowance (IDA) applies to the Public sector employees of the Central Government. Depending on the Consumer Price Index, the Industrial Dearness Allowance for the public sector employees undergoes quarterly revisions to offset the impact of rising inflation levels.

Variable Dearness Allowance (VDA) applies to the Central Government employees. As per the Consumer Price Index, it is revised every six months for assisting offset the impact of the rising inflation levels. The VDA in itself depends on the three different components, as stated below.

• Base Index – it remains fixed for a specific period.
• Consumer Price Index – it impacts the VDA as it changes each month.

Variable DA amount which the Government has set remains fixed unless the government has revised the basic minimum salaries.

Dearness Allowance for Pensioners

Pensioners, in this case, are retired employees of the central government who are eligible for either the family or individual pension from the government. Each time the Pay Commission rolls out a new salary structure, changes are also reflected on the pension of the retired employees.

Similarly, if a particular percentage alters the Dearness Allowance, the pension of the retired individual is revised accordingly.

Changes in the Dearness Allowance according to the Budget of 2018

According to an estimate, more than 50-lakh central government employees received the government’s salary. Then there are also other 55-lakh retired central government employees eligible for a pension.

In accordance with the Central Government’s recent announcement in the Budget of 2018, the Dearness Allowance has been hiked by 2%. This was a significant relief for all those beneficiaries since their Dearness Allowance has been enhanced from 5% to 7%. These changes are going to benefit all the employees and pensioners of the Central Government of India significantly.

Difference between the DA and HRA

Dearness Allowance should not be confused with the HRA as they are two different components and are treated separately for income tax. One major difference is that HRA applies to private as well as public sector employees, even though only public sector employees are entitled to DA. There are certain tax exemptions applicable for the HRA that is not available for the DA.

Central Pay Commissions (CPC)

The government constitutes of the Central Pay Commission(CPC) almost every 10 years for revising the salary of its employees. Often these are adopted by the states on some modifications. In the government sector, unlike in the private sector, the pay hike is a once-in-10-years-affair, which makes CPC, right from the first that submitted its report in the year 1947, a hugely influential agency.

Yes, the Government employees need to undergo an annual appraisal process known as the Annual Performance Appraisal Report (APAR). However, that exercise is only for the promotion and not for any hike in pay.

Government employees are not entitled to a regular hike in dearness allowance, which is meant to offset inflationary pressure on the earnings. Still, it is the CPC who fixes the bureaucrats’ pay for the 10 long years.

Central Pay Commission	Date of Appointment	Date of Submission of Report	Highlights
First Pay Commission	May of 1946	May of 1947
Second Pay Commission	August of 1957	August of 1959
Third Pay Commission	April of 1970	March of 1973	Payment of the DA whenever the CPI rose by 8 points over-index of 200 (with the base 1960 = 100). The extent of neutralisation is granted with effect from 1st January 1973 ranged from 100% to 35%
Fourth Pay Commission	June of 1983	Three Reports submitted in June of 1986; Respectively December of 1986 and May of 1987	Implemented from 1st January 1986 with effect. The DA grant on a ‘percentage system’ on the basic pay (1986). Also, it recommended the payment of DA twice a year; 1st January and 1st July. Each instalment of the DA used to be calculated with reference to the percentage increase according the 12 monthly average of the All India Consumer Price Index (base 1960). The neutralisation extent now ranged between 100% to 65%.
Fifth Pay Commission	April of 1994	January of 1997	Implemented with effect from January 1st, 1996. It looked into the differential neutralisations and found it out to be an injustice for the senior officers and the recommended uniform neutralisation of 100% for the employees at all the levels. The Commissions have suggested that the dearness allowance has to be converted into the dearness pay with an increase in the living cost rises by 50% every time over the base level.
Sixth Pay Commission	October of 2006	March of 2008	Implemented with effect from January 1st, 2006.
Seventh Pay Commission	February of 2014	Before December of 2015	Scheduled to take effect from January 1st, 2016.

7th Pay Commission

The basic salary of the employees is going to be multiplied by the fitment factor – 2.57. It is going to increase the monthly CTC of the government employees except for the allowance. Another part of the salary breakup will be the allowances that include Dearness Allowance (DA), House Rent Allowance (TA), medical reimbursement, Travel Allowance (TA), etc.

Ever since0 the Indian government has announced that it will reinstate the Dearness Allowance restoration for almost 52 lakh central government employees. The servants of the central government are confused about how it is going to affect the salary.

It has already been announced by the government that these benefits are going to be given to the employees from July 1st, 2021. The central government employee’s (CGE) DA will be increased from 17% to 28%, which includes a 3%, 4%, and expected 4% DA hike due since the 1st January 2021.

As per the seventh pay commission rules, the employees’ basic salary is going to be multiplied by the fitment factor, 2.57. This will increase the monthly CTC of the government employees except for the allowance.

The Travel Allowance (TA) will further increase after the DA with the pending balance added to the salary.

The DA hike will also change the monthly PF, Gratuity contribution from the central government employees.