Your Take Home Pay May Increase If This PF Rule Changes

Apart from other amendments, the government is currently acting upon a Bill that envisages changes to the EPF contribution rate for both the employee and employer. If the proposal goes through, the take-home pay of employees might see an increase.

Your Take Home Pay May Increase If This PF Rule Changes

In the present scenario, the PF contribution for both the employer and employee stands at 12% of basic pay and dearness allowance. Also, the employee has an option to contribute up to 100% of his or her basic pay towards the EPF account which is maintained as the Voluntary Provident Fund or VPF, however for the same employer has no obligation whatsoever when it comes to making any contribution.

The proposal as per the draft EPF Bill

In the draft EPF Bill, it has been proposed to reduce the EPF contribution rate for both the employee and employer to 10% as against the current 12%. Also, the bill specifies that the centre will notify the contribution rate for the EPF account together with the period for which this rate shall apply for any class of employee.

"Under the existing provisions, a 12 per cent rate is widely applicable while the 10 per cent rate is notified for a select category of establishments. The proposed bill also calls this out. The bill also proposes to have different rates for a select class of employees for a limited period. This will be notified by the Central Government", Saraswathi Kasturirangan, Partner, Deloitte is cited as explaining in one of the leading business dailies.

Result of decline in PF contribution

Automatically the change or reduction in the contribution rate of both the employee and employer will reflect in the higher take-home pay by a similar proportion. Nonetheless, it remains to be seen which category of employed people will be covered under the reduced rate. Also, with it, the forced savings to meet one's financial requirements during requirement will decrease and one would have to supplement that with other investment avenues such as APY, NPS, equity mutual funds etc.

Conversely, in the same bill, there are proposed other changes that could otherwise reduce your take-home pay, so it all remains on what finally sets in for us as employed Indians.

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