Aligning Exempt PF Trust Rules with the New Labour Codes and EPF Scheme, 2026: Need of the hour

Need of the hour

The implementation of the new labour codes and the Employees’ Provident Funds Scheme, 2026 marks a significant change in the regulatory framework governing provident fund contributions and exempt PF trusts. Under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952establishments maintaining their own approved provident funds could obtain exemption under Section 17 of the EPF Act and administer their PF through a trust, subject to the applicable statutory conditions and the requirement to provide benefits that were not less favourable than those available under the statutory scheme.

The Code on Social Security, 2020 continues the framework for exemptions through Section 143, while the EPF Scheme introduces a number of changes to the governance, administration and compliance requirements applicable to exempt PF trusts. These include changes relating to the constitution of Boards of Trustees, audit and financial reporting, investment and custody of PF monies etc.

This article focuses on the changes relevant to exempt PF trusts and the steps that employers and trustees should consider adopting to align their PF trust deed and rules, governance arrangements and administrative processes with the EPF Scheme.

Key changes relevant to exempt PF trusts

1. Continuation of existing exemptions

The move to the new framework carries direct consequences for establishments that currently hold PF exemptions. Paragraph 13(40) of the EPF Scheme requires an establishment enjoying an exemption under the repealed legislation (EPF Act) to apply for continuation of that exemption within two years from the date of notification of the Social Security (Central) Rules, 2026 subject to the eligibility conditions set out in the SS Rules. The SS Rules were notified on 8 May 2026. Continuation is therefore a distinct transition step in its own right, and an exemption granted under the earlier regime does not simply roll forward indefinitely under the new framework.

2. Exemption period and renewal

The EPF Scheme also recasts how long an exemption lasts and how it is carried forward. An exemption is now granted initially for a period of three years, with any application for extension required at least six months before expiry. Renewal turns on continued compliance with the conditions governing the exemption and on the financial criteria prescribed under the EPF Scheme, including the requirement of a positive net worth in each of the three preceding consecutive financial years. Where those conditions are met, the exemption continues in operation. Accordingly, companies are now required to seek renewal of their exemptions at prescribed intervals under the EPF Scheme.

3. Meetings of the Board of Trustees

The EPF Scheme introduces specific reporting requirements tied to meetings of the Board. This adds a governance obligation that did not sit within the earlier framework, so trusts whose existing Trust Rules contain no corresponding provision now operate against a reporting standard their documentation does not yet reflect.

4. Declaration of interest

The EPF Scheme places a new ceiling on the rate of interest an exempt PF may declare.

Under paragraph 13(9) of the EPF Scheme, the Board of Trustees must declare the rate annually, commensurate with the income earned during the relevant year, and the rate cannot exceed 200 basis points above the rate declared by the Central Government for the statutory PF. This sits alongside the familiar floor, since Trust Rules drawn under the earlier framework typically provide only that the declared rate should not fall below the Government rate, and now operate against both an upper limit and an express annual declaration requirement.

5. Electronic maintenance of accounts

The EPF Scheme moves exempt provident funds towards mandatory electronic administration. Under paragraph 13(17), the accounts of the Fund must be maintained electronically. That is a firmer position than the earlier framework, which contemplated electronic maintenance without casting it in mandatory terms, so exempt trusts now face an accounting and record-keeping standard their existing systems and documentation may not yet meet.

6. Audit of the Fund

The audit framework under the EPF Scheme largely preserves the existing requirements applicable to exempt PF trusts, including annual audits and the auditor rotation rules. A notable change, however, relates to the mode of filing. Under paragraphs 13(32) and 13(33), the auditor's report and audited balance sheet must now be submitted electronically within six months from the close of the financial year, in the format prescribed by the Central Provident Fund Commissioner in consultation with the Institute of Chartered Accountants of India. Exempt PF trusts should therefore review and update their administrative processes to ensure timely electronic filings under the new regime.

7. Annual statements and online access

The EPF Scheme sharply shortens the period within which annual PF statements reach members. Under paragraph 13(12), trustees must maintain accounts electronically, issue an annual statement of accounts to every employee within two months from the close of the financial year, and provide facilities for employees to access their PF balances online. This compresses the earlier six-month period that many existing Trust Rules still reflect and adds an online access obligation that the older documentation was not built to accommodate.

8. Electronic circulation of Trust Rules

The EPF Scheme requires the rules of the Fund to be circulated electronically to employees, together with a translation in the language of the majority of employees. This makes electronic circulation and the accompanying translation a fixed feature of how the Rules must reach the workforce, rather than a matter of administrative preference under the earlier practice.

9. Corporate Restructuring and Continuity of Exemption

The EPF Scheme departs from the earlier position under which a merger, demerger, acquisition, amalgamation or similar change in legal status resulted in the automatic revocation of an exemption and required a fresh exemption application. Under paragraph 13(37) of the EPF Scheme, the exemption status of the establishment is instead to be determined by the competent legal forum, thereby removing the automatic revocation requirement. The employer of the new establishment shall be at liberty to continue exemption or surrender exemption by following the procedure specified by the Central Provident Fund Commissioner.

10. Employer Liability for Trust Losses

The EPF Scheme largely carries forward the existing principle that the employer is responsible for making good any loss suffered by an exempt PF trust due to fraud, defalcation or improper investment decisions. However, the Scheme now prescribes a specific timeline for recoupment, requiring any loss of principal or interest to be made good within two months from the date of the loss or the end of the relevant financial year, whichever is earlier.

11. Express framework for voluntary surrender of exemption

The EPF Scheme introduces an express statutory framework for the voluntary surrender of exemptions. While the EPFO had previously addressed the surrender process through administrative guidance issued in its circular dated 27 December 2016, the subject has now been formally codified under the EPF Scheme.

Conclusion

The transition to the new framework is more than a change in statutory nomenclature. Existing PF Trust Rules built around the earlier EPF framework will need to be reviewed provision by provision against the SS Code, the SS Rules and the EPF Scheme, 2026, covering contributions and the wage ceiling, continuation of exemptions, the Board of Trustees, audit and financial reporting, investment and custody of monies, declaration of interest, electronic administration and member statements. For exempt establishments, the immediate priority is the requirement to apply for continuation of the existing exemption within the prescribed two-year period from notification of the SS Rules, alongside newer areas of employer exposure such as the cap on the declared interest rate and liability for losses suffered by the Fund.

The practical output of this exercise is an amended Trust deed. Where the review shows inconsistency with the new framework, the deed and its Rules should be formally amended, and the exemption documentation, Board governance processes and operating procedures updated in the same exercise rather than treated as a textual change alone. Those amendments should not be regarded as self-executing. The revised deed and continuation of the exemption will need to be taken through the PF authorities, and the trust arrangements aligned with the Labour authorities administering the SS Code, so that the amended structure carries the necessary approvals rather than resting on the establishment's own reading of the Scheme.

The objective is not to replicate the statutory scheme mechanically. Where the Trust offers benefits more favourable to employees and those benefits can continue under the new framework, the relevant provisions should be preserved, provided the deed as amended and approved remains compliant with the mandatory requirements of the SS Code and the EPF Scheme.

[The authors are Executive Partner, Associate Partner and Associate, respectively, in Employment Law practice at Lakshmikumaran & Sridharan Attorneys]