PF contribution rule changed! Contribute only 10% over the next 3 months if you earn above Rs 15,000

The Minister of Finance, Nirmala Sitharaman, in her press conference today reported on the measures that will be taken to benefit the members of the Employee Provident Fund (EPF).

Those earning a base salary of more than Rs 15,000 per month will now contribute 10 percent in lieu of the mandatory 12 percent contribution to the FP for the next 3 months through August 2020. In addition, the employer contribution is it will drop to 10 percent from 12 percent. However, for central government employees, the employer contribution rate remains the same.

“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 for employers, especially for international workers where the company bears the cost, ”says Saraswathi Kasturirangan, partner at Deloitte India.

Currently, the employee’s mandatory monthly contribution is 12 percent of the monthly payment, which includes the basic monthly payment, expense allowance, and withholding allowance, if applicable. As an employee, one is allowed to increase the contribution to 100 percent of the basic salary. Such contributions above the mandatory 12 percent are considered voluntary provident funds (VPF). Contributions to VPF can be modified annually by the employee.

An employer must match the employee’s contribution of 12 percent of the employee’s basic salary, however, the employer is not required to match the employee’s highest contribution to VPF. However, the total amount of the employer contribution does not go to the employees PF account. Of the 12 percent employer contribution, 8.33 percent (out of a maximum of Rs 15,000) goes to the employee’s pension plan (EPS), that is, Rs 1250 every month, while the balance goes to EPF.

Tapati Ghose, partner, Deloitte India, raises some pertinent questions. “The” advantages “are undoubtedly a lower cost to the employer and an increase in profitability for 3 months, which increases the liquidity of people in these times of cash crises. However, there could also be some” related disadvantages. Employers generally agree to a gross cost to the company that includes 12% of the employer’s contribution to PF. With the rate reduced to 10%, would there be a reduction in the benefit provided to employees and, therefore, would it be detrimental to your interests? Also, if the employer has agreed to a 12% employer contribution on your employee contracts, can the reduction be applied?