Home >Money >Personal Finance >New EPF rule: What your salary slip might look like from next month?
A reduction in employees' provident fund (EPF) contribution might also lead to an increase in your total tax outgo.
A reduction in employees' provident fund (EPF) contribution might also lead to an increase in your total tax outgo.

New EPF rule: What your salary slip might look like from next month?

  • EPF contribution has been cut by a total of 4% for 3 months to help the salaried class tide over the current coronavirus crisis
  • If your employer doesn't pass on the full 4% benefit to you then it may end up in a small cut in your total salary

NEW DELHI : As a temporary relief measure to increase in-hand salary during the coronavirus crisis, finance minister Nirmala Sitharaman has reduced the employees' provident fund (EPF) contribution by 4% for three months. As a result, employees of around 6.5 lakh companies will benefit with liquidity of around 2,250 crore every month.

According to the rule, employees and employers deposit 24% -- 12% each of basic salary and dearness allowance (DA) -- as EPF deductions every month for the retirement kitty maintained by the Employees' Provident Fund Organisation (EPFO).

Now, the statutory deduction has been cut by a total of 4% (2% of employer's contribution and 2% of employee's contribution). Employees of central public sector enterprises and state PSUs will, however, continue to pay 12% of the employers share whereas employees will pay 10%.

So how would your salary slip look like after the EPF rejig? While the 2% of your EPF contribution would invariably land in your take home salary, there is still some confusion about what will happen to the employer's 2% contribution to EPF.

Typically, the break-up of your CTC (cost to company) or total salary package includes the 12% contribution to be made by the company on your behalf in your EPF account. Now since the government has reduced the mandatory 12% requirement, some employers might not pass on the benefit of the remaining 2% to their employees.

In case some employers choose to give you the benefit of only 2% (employee's contribution), then it may lead to a net reduction of 2% equivalent to your basic salary and DA for three months. Others might argue that since the 12% employer's contribution is part of the CTC, the company is liable to pass on the benefits of EPF cut to the employee.

"In case of those private sector organisations where employer contribution to PF is included as part of the employee’s “Cost-to-company" package (CTC) and where the employer has otherwise not made any cuts to fixed pay due to the Covid impact, the employees may expect to be compensated for this reduction in PF contribution by way of an equivalent cash allowance," Alok Agrawal, Partner, Deloitte India, said.

However, he said it remains to be seen from the final PF notifications to be issued by the authorities, if certain employers will have an option to continue maintaining the same 12% contribution, if their financial position permits.

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