Your take-home salary may increase if this proposal on EPF gets clearance
New Delhi: EPFO rules on contribution to Employees’ Provident Fund (EPF) may witness significant change in the near future. The Ministry of Labour & Employment has come out with a draft bill aiming to change the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The draft proposes several changes in the current EPF rules which include a proposal to reduce the EPF contribution rate for both employees and employers.
If the proposal is accepted by the government, the take-home salary of employees could increase. As per current EPF rules, both the employee and employer contribute 12% of the employee’s basic salary to the provident fund. But for some companies, the contribution rate is 10%. This is notified by the government. But employees have the option to contribute as much as 100% of their basic pay to EPF but employers are not required to match the employee’s contribution.
However, the EPF draft amendment bill proposes to reduce the EPF contribution rate for both employer and employee to 10%. The draft bill also proposes that the government may notify a specific rate of contribution and the period for which such rate will apply for any class of employee. The proposed bill also has the provision of differential contribution rate for different class of employers, while the majority will have to pay 10%.
If the proposed amendments are passed, then take-home salary of all the employees will go up as EPF contribution rate will come down to 10% from 12% for most of the employees. For example, if an individual has a basic salary of Rs 20,000, then his take-home salary will increase by Rs 800 (4% of Rs 20,000) as bother the employee and employee will contribute 2% less towards the EPF.
But this will have a negative impact on your retirement kitty. Worth mentioning here is that EPF provides the maximum return among all the available fixed-return bearing retirement saving instruments. If EPF contribution rate is reduced then every month a lower amount will go to your retirement kitty and the final amount you will get at the time of retirement will be less. In order to reduce the impact employees may have to save additional amount in equity mutual funds to cover the anticipated reduction in the EPF maturity amount.
If the EPF amendmend bill gets notified by the government, then it will be called the Employees’ Provident Funds and Miscellaneous Provisions (Amendment) Act, 2019. Till now EPF functioning is guided by the Employees’ Provident Funds & Miscellaneous Provisions (EPF and MP) Act, 1952, which applies to all establishments having 20 or more employees.
The proposed EPF amendment bill also aims to give EPF members the option to switch their money from EPS to National Pension System (NPS). And to protect the employees of companies going through liquidation under the Insolvency and Bankruptcy Code (IBC), the bill proposes to give priority to the payment of EPF contribution over other debts.
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