TR – 8 basis of calculation of Workers’ Profits Participation Fund

1.    THE ISSUE

Opinion was sought whether Workers’ Profit Participation Fund is to be calculated after or before charging it against the profits of the year. For illustration purposes an example is given here under:

a) Profit of the Company           :    Rs.250.00
….WPPF @ 5% of Rs.250.00    :    Rs.  12.50

b) Profit of the Company           :    Rs.250.00
….WPPF @ 5/105 of Rs.250.00:    Rs.  11.90

2.    TECHNICAL COMMITTEE RECOMMENDATION

I.    Contribution to Workers’ Profit Participation Fund is to be made on the basis of provision contained in clause (b) of sub-section (1) of section 3 of Companies Profits (W.P.) Act, 1968. This provides that the amount should be 5% of its profits before charging such WPPF, as per audited accounts. If there are no profits no contribution is payable. Hence, this is in the nature of an appropriation of profits.

II.    Accordingly, method indicated in example (a) is correct and should be followed.

(165th and 166th meeting of the Council – July 30-31 and September 17-18, 2004