It is brought to your kind notice that the Ministry of Labour & Employment, Govt. of India has published a Gazette Notification (attached) bearing no.: S.O. 1513(E ) dated 18th May 2020 to further, provide liquidity in the hands of employers and employees as financial support due to COVID -19.
The followings are the important notes/information for your kind reference and consideration before taking/initiating any steps by covered ‘establishment/company/organization’ under the EPF & MP Act, 1952 to further seek the monetary benefits under the present scheme/notification:
- That the said notification is not applicable on any establishment, other than Central Public Sector Enterprises and State Public Sector Enterprises and other establishments owned by, or under the control of the Central Government or the State Government, as the case may be, in respect of wages payable by it for the months of May, June, and July 2020
- That any establishment shall not be eligible in case any establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojana guidelines issued by the Employees’ Provident Fund Organization vide its Office Memorandum No.C-1/Misc./2020-21/Vol.II/Pt. dated 9th April 2020 ”.
- That the said monetary benefits scheme is presently applicable for limited wages period i.e. May paid in June, June paid in July and July paid in August 2020.
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Account Head
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Up to wage month
April 2020
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From wage months
May 2020 to July 2020
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Employee’s PF Contribution – A/c .No: 1
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12%
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10%
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Employer’s PF Contribution – A/c. No: 1
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3.67% (12%–8.33%)
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1.67% (10%–8.33%)
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Employer’s EPS Contribution – A/c. No: 10
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8.33%
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8.33%
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EDLI Contribution – A/c. No: 21
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0.50%
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0.50%
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Administrative Charges – A/c. No: 2
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0.50% (Mini.Rs.500/-)
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0.50% (Mini.Rs.500/-)
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No change in inspection charges in A/c.No.22 in respect of EDLI exempted establishments
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Keeping view of above and add to it, we have received many queries from employers and employees in respect on the followings in this regard EPFO has shared the respective Faq on the same
In the respective FAQ, many points are clear as per the queries received.
Now it is option to the company/Service providers ( Contractors) to change the contribution rate from 12 % to 10 % as per the Management decision & Principal Employer but I would suggest that there is no need to change the rate of contribution for the following reason
For example, if the monthly basic salary is Rs 30,000, the employee contribution towards his or her EPF would be Rs 3,600 a month (12 percent of basic pay), while the equal amount is contributed by the employer each month. If the contribution rate is reduced to 10 percent, Rs 3,000 a month becomes the PF contribution by the employee and the take-home pay will increase by Rs 600.
1. Impact on CTC
The employer’s contribution to EPF is a part of the CTC. As the employer is supposed to match the mandatory contribution rate, if it is reduced to 10 percent, the employer’s contribution to reduces. Thus, CTC too will see a fall, unless adjusted by the employer under some other head. Once adjusted and the employer decides to pay the 2 percent differential under some head, the take-home pay will increase, and for three months the workload of changing of CTC will also increase
The employer’s contribution to EPF is a part of the CTC. As the employer is supposed to match the mandatory contribution rate, if it is reduced to 10 percent, the employer’s contribution to reduces. Thus, CTC too will see a fall, unless adjusted by the employer under some other head. Once adjusted and the employer decides to pay the 2 percent differential under some head, the take-home pay will increase, and for three months the workload of changing of CTC will also increase
2. Impact on taxes saved.
As per the above take-home increase, Your contribution towards PF qualifies for tax benefit section 80C of the Income-tax Act. If the proposals go through, lesser contributions will mean that much less of tax benefit. For example, if annual contribution towards PF falls by Rs 7,200, then for someone paying 31.2 percent tax (highest slab), then you will save nearly Rs 2,250 lesser tax. One can, however, invest in products like in ELSS to save tax up to Rs 1.5 lakh in a year
As per the above take-home increase, Your contribution towards PF qualifies for tax benefit section 80C of the Income-tax Act. If the proposals go through, lesser contributions will mean that much less of tax benefit. For example, if annual contribution towards PF falls by Rs 7,200, then for someone paying 31.2 percent tax (highest slab), then you will save nearly Rs 2,250 lesser tax. One can, however, invest in products like in ELSS to save tax up to Rs 1.5 lakh in a year
3. Cumulative Interest Loss.
As EPF is on every month is giving Cumulative rate of Interest on a monthly basis if the contribution reduce Employee will be losing the Interest of three months which will be at a reduced rate, on both Employee Share & Employer Share.
From the above observation & referring to the Faq of the EPFO, I would suggest not to reduce the contribution rate as reducing the rate is not going to benefit either employee nor employer
Reduce rate Notification:- EPFO Reduces The Contribution Rate To Ten Per Cent From Existing Rate Of Twelve Per Cent
Faq on reduce rate:- FAQ_Reduced_rate_of_contribution
