Govt rolls back decision on tightening PF withdrawal norms

Union labour minister Bandaru Dattatreya says the notification issued on 10 February 2016 is cancelled, now the old system will continue


The move, following violent protests by textile industry workers, came a month after the government went back on its budget proposal to tax EPF. Photo: AFP
The move, following violent protests by textile industry workers, came a month after the government went back on its budget proposal to tax EPF. Photo: AFP

Hyderabad: Buckling under pressure for the second time in two months, the government on Tuesday rolled back a diktat making it difficult to make withdrawals from the employees’ provident fund (EPF) before retirement.

The move, following violent protests by textile industry workers, came a month after the government went back on its budget proposal to tax EPF.

On 10 February, the labour ministry revised the EPF withdrawal norms allowing employees to withdraw only their own contribution (12% of basic salary) to EPF and prescribing that the employer’s share (3.67% of basic salary after keeping 8.33% for Employees’ Pension Scheme) can only be withdrawn at the retirement age of 58 years.

Until then, employees had been allowed to withdraw the total EPF amount before retirement for medical emergencies, to fund children’s marriage or while changing jobs.

This has now been retained.

“The objective was to provide a minimum social security to the workers at the time of retirement. It was noticed that over 80% of the claims settled by EPFO belonged to pre-mature withdrawal of funds, treating the EPF accounts as savings accounts, and not a Social Security instrument,” a labour ministry statement issued on Tuesday said.

However, thousands of garment workers, angry with the change in EPF withdrawal norms, protested for the second day in a row in Bengaluru, torching buses and attacking a police station, forcing security forces to fire tear gas shells to control the crowds.

Following the protests, the labour ministry first announced earlier on Tuesday that the notification was being kept in abeyance till 31 July, before completely withdrawing it later in the evening. Earlier, it had put the notification on hold till 30 April.

D.L. Sachdeva, general secretary, All India Trade Union Congress, said the government does not have the right to force workers to retain their EPF savings until the age of 58 year.

“It seems good sense has prevailed on the part of the government,” he added.

Tapan Sen, general secretary of Centre of Indian Trade Unions, said the government’s original notification tightening EPF withdrawals had been opposed by all trade unions.

“I had also pulled up the government in the Parliamentary standing committee. Government was compelled to withdraw the notification after they understood it will have serious problem for industries,” he added.

However, the labour ministry in a statement said the notification was issued “with the consent of Trade Unions and with the intention of promoting a decent accumulation of provident fund for the members at the end of their working lifetimes”.

Sachdeva accused the government of lying. “The notification was issued on 10 February without consulting the trade unions. It was only put before the CBT (Central Board of Trustees of the EPFO) on 29 March, where it was opposed by all trade unions,” he added.

On 8 March, finance minister Arun Jaitley, facing a severe backlash from the salaried middle class, also rolled back a key budget proposal for only 40% tax exemption of the total corpus of EPF and National Pension System withdrawn at the time of retirement. This would have made the remaining 60% of the EPF’s incremental corpus from fiscal year 2017 taxable unless the amount was invested in an annuity product.

Currently, withdrawal from EPF is entirely tax-free.

In addition, the government also decided to withdraw the provision which put a monetary ceiling of Rs.1.5 lakh on employers’ contributions to provident fund for claiming tax benefits.

PTI contributed to this story.

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