Union Finance Minister Nirmala Sitharaman on Wednesday, May 13, announced a reduction in Employee Provident Fund (EPF) contribution for private-sector employees and employers. In a major economic relief for businesses and workers, their EPF contribution has been slashed to 10 per cent from the current mandated 12 per cent.
As per the FM, the new rate of the EPF contribution will remain into effect for the next three months i.e. June, July and August, amounting to total liquidity support of Rs 6750 crore.
What does this mean for employees and employers?
Presently, it is mandatory for employees to contribute 12 per cent of their salary to EPF accounts. Therefore, a reduction of 2 per cent in the contribution implies an increase in the take-home salary for employees.
The current income tax laws also demand a matching contribution by the employers which means the move by the FM will allow them to save on their share in the provident funds of the workers.
However, the new rate is not applicable to employees covered under the PM Garib Kalyan Package. Also, the state-run CPSEs and PSUs will continue to contribute to EPF accounts at the present rate of 12 per cent but their employees have been given an option to pay 10 per cent.
Government to continue bearing EPF contribution of specified entities
The Finance Minister further announced a three-month extension of a scheme under which the government pays the EPF contribution of employees and employers. The measure is only applicable to establishments that have up to 100 employees and 90% of them earn less than Rs 15,000 per month.
The scheme was first launched in the month of March to provide financial assistance to the struggling entities and was going to expire on May 31. "To ease financial stress as businesses get back to work, the Government has decided to continue EPF support to select businesses for 3 more months providing a liquidity relief of Rs 2,500 crore," said Nirmala Sitharaman.
Experts react
Commenting on the relaxation of EPF contributions which is a part of the Rs 20 lakh stimulus package announced by Prime Minister Narendra Modi, Saraswathi Kasturirangan, partner at Deloitte India, said, "The move by the government to reduce the 12% PF contribution 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," added Saraswathi.
