EPF Contribution

Employees will have to pay 12% of the basic monthly wages towards EPF. Employers will also have to make ETF contributions. This will depend on the number of employees. Employers will have to pay 12% of basic, daily allowance and other allowances.

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Union Budget 2021 Highlights:
Delay in employee contributions by employer not to be considered as deductible
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Finance Minister of India Nirmala Sitharaman announced that late deposit of employee’s contribution by the employer will not be considered as deductible by the employer for contributions made to the provident funds (PF).

In case the employer has already deducted the PF but not yet deposited it, a further delay in the process will not be considered as deduction for the employer.

Overview on EPF Contribution

It is said to be quite an issue for people who were earning in the lower bracket of salary as the final salary per month came down to be not sufficient for their monthly expenses, often driving them to debt. India is comparatively conscious about debt but has not helped in such situations.

However, new Indian Budget for 2015 was released bringing relief to some. Earlier, the EPF functioned based on contributing 12% of their monthly salary towards EPF, while the employer too had to make the same contribution every month. Besides the EPF, employers had to contribute 8.33% on the pension for every individual employee.

Employer’s EPF Contribution

  1. Employees Provident Fund (EPF) Scheme
  2. This is payable for all establishments that have or are employing 20 or more people and are engaged in an industry listed under one of the 180 industries under Section 6 of Act, with 12% of the basic pay, Daily Allowance, food concession along with retaining allowance, if there are any, up to a maximum of Rs.15,000 each month. Some voluntary contributions that are higher are acceptable with a joint request from the employer and the employee. But, the rate of contribution has to be 10% for some categories of establishments that include:

    • An establishment that has been covered before September 22, 1997 in a case where less than 20 people are employed.
    • A sick industrial company based on the definition, provided in the Clause (0) of Sub-Section (1) of Section 3, which is a part of the sick industrial companies under the 1985 Act. They also need to be declared the same, by the Board for Industrial and Financial Reconstruction.
    • An establishment whose losses at the end of a financial year that has been accumulated, adds up to the entire net worth or exceeding it.
    • A company or organization involved in manufacturing Jute, Beedi, Bricks, Coir excluding the spinning sector) and Guar Gum Industries or factories.
  3. Employees' Pension Scheme (EPS)
  4. 8.33% from the employer's share of PF contributions of the total salaries that is limited to Rs. 15,000 each month is sectioned and contributed towards the Employees' Pension Fund in the A/C No. 10 that has been in effect since September 1, 2014. Also Central Government of India contributes 1.1 or 6% of total wages.

  5. Employees' Deposit Linked Insurance (EDLI) Scheme
  6. For this scheme no amount is taken from employee's salary. However, the employer has to make a payment of 0.5% of the total wages amounting to a maximum of Rs. 15,000 every month since September 1, 2014. The maximum benefit can amount up to Rs. 3,60,000, under this scheme.

The Relief in EPF Contribution

The new budget has brought a lot of relief particularly for the employees pertaining to their salaries. This department earlier has several issues especially dealing with the amount of legal hassles as well as red tape made, making it almost impossible for employees to get into. The 2015 budget saw, many worries go away, in hopes that both the employer and their employees will greatly benefit from it. One of the main highlights include the optional factor to not make tax payments if the monthly income is lower than Rs. 30,000. This will also be applicable for senior citizens, which is quite sustainable since it would help to take care of their finances at their age. Senior citizens earlier had to pay an amount every month towards their PF leading to hassles of accessing it for legal complications did not make much sense. With the advent of the new budget, the Government in India has taken visible initiatives to reduce the burdens of the working class, as well as making things easier for all parties in the scene.

Another proposal that was presented was to allow employees to make a choice on how they would like to receive their salary. While the proposal still stands at a stage of development, and would require the opinions of the companies along with their stakeholders for opinion before making a final decision, if it does get to be stated it will be helpful for the employees. This is because, it would then allow them to choose between the Employee’s State Insurance Corporation (ESI) or the Health Insurance product that they choose. Also it would allowed the salaried to choose the option more suitable to their needs and make some important decisions in pertaining to their contributions in their salary besides the conventional and less accessible EPF contributions.

With such notable proposals being made the nation’s Government has made it easier for working for organizations and companies much more lucrative the youngsters who contribute to being one of the largest population any country has, of its kind. With such initiatives there will be lesser migrations to other countries as people will save more and have a peace of mind in their country. As of now i.e. October 2015, one needs to know the contributions that can be made towards EPFO.

We already know that employees have to pay 12% of their basic monthly wages towards EPF, but what about the employers?

FAQs on EPF Contribution

  1. What is the current EPF contribution rate?
  2. The current EPF contribution rate stands at 10%. However, both employee and employer may contribute at the standard rate of 12% if they want to.

  3. How is EPF interest calculated?
  4. Interest on the Employees' Provident Fund (EPF) is calculated on the contributions made by the employee as well as the employer.

  5. Can employees contribute more to EPF?
  6. Yes, as an employee you can contribute up to 100 percent of the basic pay.

  7. What is the maximum limit of EPF deduction?
  8. The maximum limit when it comes to EPF deduction is Rs.15,000.

  9. Who all are eligible for the reduced rate of contributions offered by EPFO?
  10. It is applicable to all class of establishments covered under the EPF & MP Act, 1952 except the establishments like central and state public sector enterprises or any other establishments owned or controlled of the central/state govt.

News About EPF contribution

  • EPF contributions to be deducted at 12% from 1 August 2020

    The monthly PF contributions of both employers and employees were reduced from 24% to 20% for May, June and July according to the announcement by the Finance Minister. As the reduced contribution amount was for the three months, the EPF deductions will be back to 24%, effective from 1 August 2020. This will include 12% from the employee and 12% from the employer.

    The EPF contribution rate was reduced during the lockdown period of the pandemic to help employees and employers with their financial situation. As the rate of deduction was reduced, the take-home pay of employees had increased to help with savings. The reduction was aimed to benefit around 4.3 crore employees and employers of 6.5 lakh establishments.

    30 Jul 2020

  • Government to pay EPF contribution for June-July-August 2020 for eligible organisations

    As part of the economic stimulus package announced by the Government of India in response to the coronavirus pandemic, in order to boost the economy, the Finance Minister announced extended support to the Employees' Provident Fund for the months of June, July, and August 2020. The government will pay the 12% of employer and 12% of employee contribution for the next three months. This will come under the Pradhan Mantri Garib Kalyan Package. This is for eligible establishments which have less than 100 employees and where 90% of employees have a monthly salary of up to Rs.15,000.

    This will provide a liquidity relief of Rs.2500 crore to 3.67 lakh establishments for 72.22 lakh employees. This was given earlier for the months of March, April, and May 2020 but will be extended for the next 3 months too.

    For organisations that are not eligible for the above support, the statutory PF contribution is being reduced from 12% to 10% for the next 3 months. This will increase liquidity for both employers and employees.

    However, state PSUs and CPSEs will continue to pay 12% contribution as employer contribution to the EPF.

    09 Jul 2020

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