epf contribution rate reduction: EPF contribution from private sector employers, employees reduced to 10% for 3 months

The government has reduced the EPF legal contribution from private sector employers and employees from 12% to the current mandatory 10% for the next 3 months. However, for government PSUs it will remain 12%, but PSU employees can pay 10%. This was one of the measures announced by Finance Minister Nirmala Sitharaman at a press conference today. This will reduce an employee’s total contribution to the EPF corpus.

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

Puneet Gupta, Director, EY India says: “For all employees covered by the EPF Scheme, the employer and employee contribution rate is 12% of the monthly payment. Today, the Government has announced that the employer and employee contribution rate will be reduced to 10% of the monthly salary. The reduced rates will be applicable for the next 3 months. The reduced employee contribution will increase the monthly salary to take home in the hands of the employees. When the employer contribution is part of the CTC agreed with the employee, the balance of the employer contribution (2% of the monthly payment) can be paid to the employees, which will further increase the monthly salary to take home in the hands of the employees. This is applicable for employees not covered by the PM Garib Kalyan Package. In addition, the CPSE and the state UPM will continue to contribute 12% of the monthly payment as an employer contribution ”.

Another measure announced by FM is the government extension that pays the EPF contribution for specific entities for the next three months as well. The extension is a continuation of the EPF assistance provided to employers in the month of March for three months that ended on May 31, 2020.

The FM in its press on March 26, 2020 announced that employees below Rs 15,000 per month in businesses with fewer than 100 workers are at risk of losing their jobs. In March, the government proposed paying the EPF contribution from both employer and employees for such organizations for three months, that is, until May 31, 2020.

Currently, under income tax laws, an individual contributes 12 percent of salary to their EPF account. An employer also makes an equivalent contribution.

Saraswathi Kasturirangan, partner, Deloitte India, says: “The government measure to reduce the contribution from 12% PF to 10% will help increase the net salary of employees. It will also reduce the cost to employers, especially for international workers where the company pays the cost ”

“With the reduction in EPF rates, some taxpayers may have to consider the deductions they wish to claim (Section 80C) especially with the entry into force of the new regime. Also, contributions to EPF will surreptitiously fall, interest rates on EPF are already falling, plus thousands of people have withdrawn EPF balances. All of these measures reduce the interest burden on the government. And while more money may be available, taxpayers should be very aware of their investments and figure out how to work to achieve a corporate retirement, “said Archit Gupta, founder and CEO of ClearTax.