New Delhi: The labour ministry is likely to ask for the withdrawal of a recent circular issued by the Employees’ Provident Fund Organisation (EPFO) that tweaks the salary threshold for provident fund deductions and could potentially lower the take-home salary of people.
In its circular issued on 30 November, the EPFO said, “All allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as part of the basic wage.” In other words, all payments except house rent allowances, over-time, bonuses and commissions, are part of the basic wage.
According to at least three government officials with knowledge of the development, the EPFO has already replied to a query from the labour ministry defending its decision, but the labour ministry is not very convinced “at least till now”. All the officials requested anonymity.
“The government has been passing through a politically sensitive time and all issues pertaining to common people will be treated cautiously,” said one of the three unnamed officials cited above.
“The labour ministry is setting up a committee comprising legal experts to evaluate the circular, (on) whether it is complying with the EPF Act, 1952,” said another official.
It also said that EPFO inspectors will not investigate establishments if a complaint comes about provident fund (PF) evasion or misuse seven years after it actually happened in a normal circumstance. But if an organization or individual complains about such a case that is more than seven years old, he or she has to furnish details of his credentials such as pay slips, ID card or a copy of the bank account indicating the credit of salary, etc., from the employer.
The circular led to trade unions questioning the motive of the EPFO, alleging it was becoming more employer-friendly.
However, authorities in the EPFO said the circular is not against the law and only aims at “bringing transparency in the system”.
Ravi Wig, a member of the central board of trustees at the EPFO, said, “EPF deduction is mandatory for employees whose salary is less than Rs.6,500. Here, poor people should not be cheated by establishments by dividing the salary into various heads and deducting PF on a very small amount.”
An EPFO official said that anybody who earns more than Rs.6,500 should be happy because of two reasons—one, he is saving more for retirement, and second, saving under EPF gives tax benefit under section 80 (C) of the Income-Tax Act.
“Since April 2012, we have started the electronic challan system under which all employers need to submit PF contribution every month online and give details of the employees for whom the organization is submitting the fund. And every EPF subscriber can now see online if his PF deduction has been deposited or not,” said the EPFO official requesting anonymity. “If you can check it every month, then there is no question of discrepancy seven years later,” the official said.
EPFO authorities said that the seven-year deadline of investigation does not preclude investigation of companies for PF fraud provided they had evidence on hand.
Meanwhile, consulting firm PricewaterhouseCoopers said in statement,“It will result in an additional cost for the employer and lower take home salary for the employees due to an increase in contribution on such allowances.”
But EPFO authorities defend their decision by saying that these days a majority of the companies put the employer’s EPF contribution even in the cost-to-company of the employees.