Tax liability of EPF subscribers will increase with lower contribution

The lowering of contribution for both employers and employees will only bring temporary relief, and affect the accumulation of retirement corpus.

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As part of the stimulus package, the Government had lowered the contributions of the employers and employees, towards the Employees’ Provident Fund (EPF) from 12 per cent to 10 per cent, till August 2020. This relief measure was to benefit employees who earn a basic salary of over Rs 15,000 a month. However, now that the employees will carry home a higher salary, their tax liability will also go up.

With employees having to contribute two per cent less towards EPF, they will have more liquid cash in hand. Their spending capacity will increase, which works well for the recovery of the economy. However, employees whose basic salary is already more than Rs 15,000, will be taking home a higher salary and will face increased tax liability. Also, while the reduction of contribution will definitely provide immediate relief, in the longer run, the accumulation of PF fund will be affected as a lesser amount is going into the fund.

Simply put, the extra cash that the employees will be carrying home by contributing two per cent less towards EPF will need to be invested in a way that will save tax. Otherwise, the employees will shell out more in terms of tax.

With the contribution towards PF being lowered, in the next three months, the Fund will receive less contribution. This will definitely take away from the amount the employee would receive on retirement, which would have been a lot higher if the contribution had not been lowered.

Therefore, employees who have subscribed to EPF will have to invest smartly to gain in the longer term and secure their life post retirement.

1 COMMENT

  1. True in respect of highly paid employees who are members. However, for people who are getting salary in the range of say 20K to 25K, it is a little relief. And they do not fall in the income tax net.

    T.K. Balappan
    Ahmedabad.

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