Recognized Provident Fund (PF) and Gratuity Fund (GF) Approval in Bangladesh: A Complete Guide

Employee benefit schemes like Provident Fund (PF) and Gratuity Fund (GF) are essential for ensuring financial security for employees while complying with regulatory standards in Bangladesh. However, obtaining approval for these funds from the National Board of Revenue (NBR) can be a complex and time-consuming process. This blog provides a detailed guide to understanding the approval process, recent updates, and how Habib Sarwar Bhuiyan & Co. Chartered Accountants can help you navigate these requirements seamlessly.

What are Provident Fund (PF) and Gratuity Fund (GF)?

Provident Fund (PF)

A Provident Fund is a retirement savings scheme where both employers and employees contribute monthly. It ensures financial security for employees after retirement or during emergencies. In Bangladesh, PF is governed by the Provident Funds Act, 1925, and the Labour Act, 2006.

Gratuity Fund (GF)

A Gratuity Fund is a lump-sum payment made to employees upon retirement or termination of service. It rewards employees for their long-term service and is regulated under the Labour Act, 2006.

Why is NBR Approval Necessary?

Approval from the NBR is crucial for both PF and GF to qualify for tax benefits. Without recognition, contributions and benefits may not be eligible for exemptions, leading to higher tax liabilities for both employers and employees.

Recognized Provident Fund (PF) Approval Process

Step 1: Establish a Trust Deed

The first step in securing PF approval is to establish a trust deed that outlines the fund’s rules, management, and operational procedures. The trust must be registered under the Trust Act, 1882.

Step 2: Submit Application to NBR

Once the trust deed is prepared, an application for recognition must be submitted to the NBR. The application should include:

• A copy of the trust deed.
• Fund rules and regulations.
• Other required documents as specified by the NBR.

Step 3: Ensure Compliance

After approval, the PF must comply with the following requirements:

• Regular contributions from both employers and employees.
• Annual audits as per Section 14 of the Labour Act, 2006.
• Timely submission of tax returns and other filings.

Tax Benefits

• Contributions to a recognized PF are eligible for tax exemptions.
• The accumulated balance is tax-free if the employee has served for more than five years.

Gratuity Fund (GF) Approval Process

Step 1: Develop a Policy

Employers must develop a comprehensive GF policy in line with legal requirements. The policy should be approved by the company’s board of directors.

Step 2: Submit the Application to NBR

The GF policy and supporting documents must be submitted to the NBR for approval. This includes details of the fund’s structure, contribution rules, and payout procedures.

Step 3: Ensure Compliance

Once approved, the GF must comply with the following:

• Accurate record-keeping of contributions and payouts.
• Adherence to tax regulations and annual filing requirements.

Tax Implications

• GF benefits are taxable, but exemptions may apply based on tenure and other factors.

Recent Updates on PF and GF Tax Rates

The NBR has recently reduced the tax rate on income from PF and GF to 15% from the previous 27.5%, effective from the fiscal year 2023-24. This change aims to encourage savings and reduce discrimination between public and private sector benefits.

Challenges in the Approval Process

1. Complex Documentation: Both PF and GF require detailed documentation, including trust deeds, policies, and financial records.
2. Regulatory Compliance: Ensuring adherence to evolving tax laws and labor regulations can be challenging.
3. Timely Audits: Annual audits are mandatory for maintaining compliance, which requires expertise.

How Habib Sarwar Bhuiyan & Co. Can Help

Expert Guidance

With over three decades of experience in audit, tax, and financial consultancy, Habib Sarwar Bhuiyan & Co. specializes in securing PF and GF approvals efficiently.

Comprehensive Services

1. Documentation Support: Assistance in preparing trust deeds, fund policies, and applications.
2. Regulatory Compliance: Ensuring adherence to all NBR requirements.
3. Audit Services: Conducting thorough annual audits to maintain fund compliance.
4. Tax Optimization: Maximizing tax benefits for both employers and employees.

Why Choose Us?

• Trusted by local and global entities since 1993.
• A team of seasoned professionals with deep knowledge of Bangladesh’s financial landscape.
• Tailored solutions that align with your business goals.

Steps to Get Started

1. Consultation: Contact Habib Sarwar Bhuiyan & Co. for an initial consultation to assess your requirements.
2. Document Preparation: Our team will assist in preparing all necessary documents, including trust deeds and fund policies.
3. Application Submission: We will handle the submission process to the NBR, ensuring all requirements are met.
4. Compliance Management: From audits to tax filings, we ensure your fund remains compliant with all regulations.

Conclusion

Securing approval for Recognized Provident Fund (PF) and Gratuity Fund (GF) from the NBR is a critical step for employers in Bangladesh. It not only ensures compliance with tax laws but also provides essential financial benefits to employees. However, the process can be complex and time-consuming.

Habib Sarwar Bhuiyan & Co. Chartered Accountants offers expert services to simplify the approval process, ensuring compliance and maximizing tax benefits for your organization. With our extensive experience and tailored solutions, we make the process seamless and stress-free. Contact us today to streamline your PF and GF approval process and ensure compliance with ease! Your financial goals are our expertise.