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The labour ministry received representations stating that the move will leave more money with workers for expenditure and reduce employers’ liability. Photo: Pradeep Gaur/Mint
The labour ministry received representations stating that the move will leave more money with workers for expenditure and reduce employers’ liability. Photo: Pradeep Gaur/Mint

EPFO may reduce provident fund contributions to 10%

EPFO trustees may approve a proposal to reduce the mandatory contributions toward social security schemes run by it to 10% for workers as well as employers

New Delhi: Retirement fund manager Employees’ Provident Fund Organisation (EPFO) is likely to lower the EPF contribution by both employers and employees to 10% from 12% following a proposal from the labour ministry that suggested reducing only the employers’ contribution.

The move is aimed at ensuring that the provident fund is at par with other social security schemes.

In a letter, the ministry has asked the EPFO to place the proposal at its central board of trustees (CBT) meeting scheduled for Saturday in Pune.

“Lowering of the employer’s share of contribution from present 12% to 10%," read an agenda item of the EPFO’s board meeting.

CBT is the apex decision making body of EPFO, the government’s pension fund manager. The labour minister is the chairman of the board.

“As you know, there have been demands from various quarters on many occasions to review the present rate of EPF contribution and placing it at par with other social security schemes, such as National Pension System (NPS), etc. EPFO is requested to place an agenda item for lowering the employer’s share from the present 12% to 10% with details in the ensuing meeting of the CBT for deliberation and decision by the board," the labour ministry wrote in its letter, sent to the central PF commissioner.

Mint has a copy of the “confidential" letter dated 28 April 2017.

The labour ministry’s suggestion is the opposite to what the earlier thinking at EPFO was—to reduce employee contribution to boost the monthly take-home pay.

Sensing that lowering only the employer’s contribution will lead to a controversy, EPFO is now preparing to lower the contribution of both employees and employers.

A senior EPFO official said on condition of anonymity that if one looks at the Contributory Provident Fund and NPS, then the rate is 10% for both. “So, the bigger point is to bring parity in PF contribution to different social security schemes," said the official.

The social security contribution rate affects the institutional environment and labour market efficiency, according to an EPFO background document seen by Mint.

The official cited above said lowering the PF contribution may facilitate widening the coverage as well as improving the take-home pay of EPF subscribers.

Currently, an employee contributes 12% of his or her basic pay as mandatory EPF contribution every month, and a matching amount is contributed by employers.

Trade union representatives on the EPFO board said they would write to the ministry and EPFO against the proposal. “It’s highly condemnable…while the government claims that the rights of the workers will be safeguarded, this move on reducing EPF contribution of employers exposes the pro-corporate policies of the government…," said Tapan Sen, general secretary of Centre of Indian Trade Unions.

EPFO manages a retirement corpus of over Rs8.5 trillion and has an active subscriber base of nearly 40 million.

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