When you get your salary for the month, a small portion of that sum does get deducted for Employee Provident Fund (EPF) in addition to other taxes. However, the EPF organization has recently announced certain changes that will impact these savings.
In his budget speech, the finance minister made a few proposals which were related to EPF. The EPF Act could be altered owing to a new amendment bill which was tabled in parliament on April 20.
The Break-Up
Every month, around 12% of basic salary and dearness allowance is taken as the employee’s contribution to EPF. The employer also matches the contribution made by the employee.
It should be noted that till August 31, 2014, the compulsory enrollment in EPF was fixed at Rs 6,500 (inclusive of basic salary and DA). Therefore, if your salary limit was within the fixed ceiling, you had the option of contributing to EPF or contribute till the fixed ceiling limit. The big change that has taken place in EPF since September 1, 2014 is that the ceiling has been raised from ?6,500 to ?15,000.
The New Proposal
A new EPF India proposal is doing the rounds now. This will include additional allowances apart from basic and DA to constitute the 12% calculation. If there is a consensus by the Labour Ministry to put forward the proposal, it could become part of the amendment bill in Parliament.
The move targets employers who do not pay basic and DA and give rises through allowances, which directly limits PF outgo. This apart, considering EPF is widely regarded as a long-term savings benefit allowing for tax deduction, tax-free interest and withdrawals, it also highlights the government’s thrust on social security which was presented in the budget session.
Pension Scheme Removal
Removal of the pension scheme is also being welcomed by different circles.
Why?
- Because the money paid as pension by employers is interest-free. Even though the pension scheme is calculated by a different formula, the interest-free clause helps limit the pension amount in the later stages.
- For employees who leave the company mid-way, the pension amount they are entitled to will be frozen till they turn 50. Pension scheme rules state that if an employee leaves after 10 years, without joining another organization, one cannot lose out on receiving the pension account.
- The decision to cut the pension scheme could also mean putting the burden of providing for retirement to the individual itself.
Budget Recommendations
During the presentation of the annual budget, finance minister Arun Jaitley proposed a legislation which would give employees the option to choose either EPF India scheme or NPS. This would mean that EPF would not be the only choice that you can expect from your employer. He or she could also offer corporate NPS as well. Corporate NPS entails a scheme whereby you and your employer can contribute a certain sum monthly. You and your employer also have the option to pick fund managers as well as the amount to be allotted as debt and equity.
