epf contribution rate cut: EPF contribution of private sector employers, employees cut to 10% for 3 months – The Economic Times

Government has reduced statutory EPF contribution of private sector employers and employees from current mandated 12% to 10% for next 3 months. However, for government PSUs the employers contribution will remain at 12% but PSU employees can pay 10%. This was one of the measures announced by the finance minister Nirmala Sitharaman at a press conference today. This will reduce the total contribution to an employee’s EPF corpus. However, reduction in the employee’s contribution from 12% to 10% will increase the take home salary or the cash-in-hand of the employee.

However, unless employers increase the CTC or take home salary of employees by an amount equal to what they were contributing to the employees’ EPF accounts, this move means a cut in the total CTC of the employee. In essence, it means that employers may not have to compensate employees for not contributing to their PF for 3 months. This, prima facie, is a loss for the employees. Further, as EPF contributions are tax exempt it would also mean a reduction in the tax exempt saving of employees.

Puneet Gupta, Director, EY India says, “For all employees covered under the EPF Scheme, the rate of employer’s and employee’s contribution is 12% of monthly pay. Today, the Government has announced that the rate of both employer’s and employee’s contribution will be reduced to 10% of monthly pay. The reduced rates will be applicable for next 3 months. The reduced employee’s contribution will increase the monthly take-home salary in the hands of employees. Where employer’s contribution forms part of agreed CTC with the employee, the balance employer’s contribution (2% of monthly pay) may be paid to employees which will further increase the monthly take-home salary in the hands of employees. This is applicable for employees not covered under the PM Garib Kalyan Package. Also, CPSEs and State PSUs will continue to contribute 12% of monthly pay as the employer’s contribution.”

Another measure announced by the FM is the extension of the government paying EPF contribution for specified entities for the next three months as well. The extension is a continuation of the EPF relief provided to employers in the Month of March for three months which was ending on May 31, 2020.

The FM in her presser on March 26, 2020 announced that wage-earners below Rs 15,000 per month in businesses having less than 100 workers are at risk of losing their employment. In March the government had proposed to pay the EPF contribution of both employer and employees for such organisations for three months i.e till May 31, 2020.

Currently as per income tax laws, an individual contributes 12 per cent of the salary to his/her EPF account. An employer also makes a matching contribution.

Saraswathi Kasturirangan, Partner, Deloitte India says, “The move by the governnment to reduce the 12% PF contribition to 10% will help increase the take home pay of employees. It will also reduce the cost to the employers, especially for international workers where the company picks up the cost”

“With the reduction in EPF rates, some taxpayers may have to relook at deductions they want to claim (Section 80C) especially with the new regime kicking in. Also, surreptitiously the contributions to EPF will fall, interest rates on EPF is already falling; besides lakhs of people have withdrawn EPF balances. All of these measures reduce the interest burden for the government. And while there may be more money at hand, taxpayers need to be acutely aware of their investing and figure out how to work towards building a retirement corpus,” said Archit Gupta, Founder, and CEO, ClearTax.