Sections 25-27 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 25 to 27 of the Code on Social Security, 2020 set up the Employees' State Insurance Fund, list the only purposes for which it may be spent, and give the ESI Corporation power to hold property, invest surplus money and raise loans. The Fund is where every employer's and employee's ESI contribution ends up.
All contributions and user charges under Chapter IV, and all other money received for the Corporation, go into one fund, the Employees' State Insurance Fund (s.25(1)). The Fund may be spent only on the twelve purposes in s.26(a) to (l), with clause (l) allowing other purposes approved by the Corporation with previous Central Government approval. The Corporation may hold and sell property, invest money not immediately needed, and raise loans only with the previous sanction of the Central Government (s.27).
Section 25: what goes into the Fund
For an employer, the practical link is the monthly remittance, and questions about how the Fund may be used are a matter for legal consultation. Section 25(1) says all contributions and user charges paid under Chapter IV, and all other money received on behalf of the Corporation, are paid into the Employees' State Insurance Fund, held and administered by the Corporation for the purposes of the Code. The proviso treats user charges collected from "other beneficiaries" under section 44 as deemed contribution, so they form part of the Fund. On those beneficiaries, see our article on sections 44 to 47.
Sub-section (2) allows the Corporation to accept grants, donations, Corporate Social Responsibility funds and gifts from the Central or a State Government, a local authority, or any individual or body, whether incorporated or not, for any purpose of the Chapter.
Sub-section (3) requires the money to be deposited in a bank or banks the Central Government approves, in an account styled "the account of the Employees' State Insurance Fund". Sub-section (4) says the Fund or any other money the Corporation holds is deposited or invested in the manner the Central Government prescribes, and the account is operated by officers authorised by the Standing Committee (constituted under s.5(3)) with the Corporation's approval.
Section 26: the twelve permitted purposes
Section 26 says the Fund "shall be expended only" for these purposes, subject to the Chapter and the rules and regulations.
| Clause | Purpose |
|---|---|
| (a) | Benefits and medical treatment for Insured Persons and, where extended, their families |
| (b) | Fees and allowances of members of the Corporation, Standing Committee, Medical Benefit Committee and other committees |
| (c) | Salaries, allowances, gratuities, pensions and provident fund contributions of officers and staff, and offices set up for this Chapter |
| (d) | Hospitals, dispensaries and other institutions and ancillary services |
| (e) | Contributions to a State Government, local authority or private body or individual for treatment costs, under an agreement |
| (f) | Cost of auditing the Corporation's accounts and valuing assets and liabilities |
| (g) | Cost of the Employees' Insurance Courts |
| (h) | Sums due under contracts entered into for the Code |
| (i) | Sums under a decree, order or award against the Corporation or its staff for acts done in duty, or under a compromise |
| (j) | Cost of instituting or defending civil or criminal proceedings arising from action under the Chapter |
| (k) | Measures for health, welfare, rehabilitation and re-employment of disabled or injured Insured Persons, within limits the Central Government prescribes after consultation with the Corporation |
| (l) | Other purposes authorised by the Corporation with the previous approval of the Central Government |
The list explains why ESI money is not a general revenue pool. Benefits, hospitals and running costs are allowed. Anything outside clauses (a) to (k) needs the Corporation's authorisation and Central Government approval under clause (l).
Limits in the Central Rules
Rule 16 of the Central Rules, 2026 sets a limit for clause (k)-type measures: annual medical examination for Insured Persons of age forty and above through the Corporation's own hospitals or dispensaries, and rehabilitation and re-employment of disabled or injured Insured Persons. The Corporation may spend up to rupees one thousand crore per year, or as the Central Government specifies from time to time, from the Fund. Section 33 gives the same power; see sections 32 and 33.
Rule 20(2) caps administrative expenses at not more than fifteen per cent of the Corporation's total revenue income in a year. That limit comes from section 30, discussed in our sections 30 and 31 article.
Section 27: property, investment, loans and staff funds
| Sub-section | Power |
|---|---|
| 27(1) | Acquire, hold, sell or transfer movable and immovable property, subject to conditions prescribed by the Central Government |
| 27(2) | Invest money not immediately needed for expenses, and re-invest or realise investments, subject to conditions prescribed |
| 27(3) | Raise loans with the previous sanction of the Central Government, on the terms it prescribes |
| 27(4) | Set up a provident or other benefit fund for its officers and staff |
Rules 15 and 17 add detail. Under rule 15, the Corporation invests the Fund in accordance with guidelines issued by the Central Government; expenses and losses from investments are charged to the Fund, and profit accrues to it; a variation or sale likely to cause a loss needs the Central Government's prior approval, although maturity at less than the purchase price does not by itself need approval; and the Central Government may direct the vacation of, or prohibit, investment in any security, land or building. Under rule 17, the Director General may acquire property for the Corporation, but the Standing Committee's sanction is needed to exchange immovable property, take property on lease for more than thirty-six months, or accept a burdened gift. Contracts above rupees twenty-five crore also need Standing Committee sanction, and the seal goes on contracts above rupees five lakh. Loans need a Standing Committee resolution and the Central Government's prior approval, and the Corporation must send the Central Government an annual statement of loans by 30 April each year.
The Central Rules apply because the Corporation is a Central body. Where a State Government is the appropriate Government for an establishment, the State's own rules apply to that establishment's other matters.
Why employers should care
An employer does not deal with the Fund directly. But the contribution you remit goes into it, and the Code protects how it is spent. Delayed contributions hit the Fund, and the Code therefore adds interest and damages elsewhere (see section 127 and 128).
Need help understanding how ESI rules apply to you?
Every rupee of ESI contribution goes into the Fund described in section 25, and the Code controls closely how it is held and spent. If a notice, a contract with the Corporation or an exemption question raises a point of law for your establishment, our team can assist through legal consultation.
Key takeaways
- One fund, the Employees' State Insurance Fund, receives contributions, user charges and grants.
- The Fund can be spent only on the purposes in s.26(a) to (l); clause (l) needs Central Government approval.
- The Corporation can hold property, invest and raise loans, but loans need previous Central Government sanction.
- Rule 16 allows up to rupees one thousand crore a year on health, welfare and rehabilitation measures, or as the Central Government specifies.
- Administrative expenses are capped at fifteen per cent of revenue income under rule 20(2).
Read next
- Section 24: Director General and Principal Officers of ESIC
- Sections 28 and 29: Insured persons and ESI contributions
- ESI contribution rates, employer 3.25%, employee 0.75%
- ESI compliance checklist for employers
Disclaimer: Based on the Code on Social Security, 2020 (as enacted) and, where noted, the Code on Social Security (Central) Rules, 2026 (G.S.R. 344(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.