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    Home»News»Better to stick with earlier rates for PF contribution?
    News

    Better to stick with earlier rates for PF contribution?

    HRK News BureauBy HRK News BureauJune 15, 2020Updated:June 16, 20203 Mins Read3705 Views
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    To enable people to have more cash in their hands amidst this pandemic, the Employees’ Provident Fund Organisation (EPFO) has allowed employees to contribute a reduced amount for the months of May, June and July.  

    The new reduction in rates — from 12 per cent to 10 per cent of basic wages and dearness allowance —is intended to help the 4.3 crore employees or members as well as the employers of 6.5 lakh establishments, to tide over the immediate liquidity crunch to some extent, as stated by the EPFO.  

    Employees and employers can now choose to contribute 10 per cent EPF for the months of May, June and July instead of the earlier 12 per cent.  

    The central government announced that companies and workers can lower their PF contributions to 10 percent of their basic salary.  

    In a clarification, the Ministry stated, “Under this package the statutory rate of EPF contribution of both employer and employee has been reduced to 10 percent of basic wages and dearness allowances from the existing rate of 12 per cent, for all class of establishments covered under the EPF & MP Act, 1952.” 

    Accordingly, if one’s basic salary is Rs. 20,000 per month, the EPF contribution will be lowered from Rs. 2,400 which is 12 per cent to Rs. 2,000 which is 10 per cent of the total amount.  

    The EPFO has clarified that the reduction is not mandatory and both employees and employers can choose to continue contributing the usual 12 per cent instead of the new and temporary reduced rate.  

    However, there is a case for continuing to contribute at the earlier rates.  

    EPF contribution is not taxable up to the extent of 12 per cent of the basic pay in a single financial year. Therefore, considering one pays the reduced EPF rates towards the fund, they will be liable to get the extra 2 per cent or Rs. 400 in this case for the three months which can be Rs. 800 if the employer also chooses to contribute according to the revised rates.  

    Unless a person is facing a severe cash crunch, this extra money in hand is not going to be much beneficial for anyone. In this case, it is better to continue contributing to one’s retirement. 

    As for whether employers, in companies where their contribution is part of the cost-to-company (CTC) package, should stick to the earlier rate of 12 per cent is unclear as per the clarification by EPFO. It states that, “ In Cost to Company (CTC) model, if Rs.10000/- is the monthly EPF wages, in CTC Model the employee gets Rs.200/- more directly from employer as employer’s EPF/EPS contribution is reduced and Rs.200/- less is deducted from his/her wages.” 

    However, employers following the CTC model are still advised to stick with the earlier rate of 12 percent EPF contribution. 

    EPFO PF revised rates
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