In the Budget 2018, FM Arun Jaitley proposes that all new employees who become the members of EPFO for the first time will be provided a contribution of 12% from the government. This means that the provision shall be exclusively applicable to new workforce who become EPFO members for the first time.
An amendment has also been proposed in the Employees' Provident Funds and Miscellaneous Provisions Act, which for first-time women employees shall reduce contribution to the EPF account to 8% of the salary without affecting employer's contribution. The provision shall be applicable for first three years of joining the workforce.
This is done to increase the take home pay of new female workforce. In the current regime, irrespective of the gender, employees as part of the EPS scheme are required to contribute 12% or 10% as the case may be. Similar contribution is made by the employer on the basic wages plus dearness allowance and retaining allowance and the lump sum amount totaling employee and employer's contribution plus interest on both the amount is paid at the employees' retirement.
The 10% contribution cap towards the EPF account for both the employee and employer is for companies that employ less than 20 employees or meet some other conditions.
For most private sector employees, contribution towards EPF account is based on basic salary which simply means that if the basic salary of the employee is Rs. 40,000 per month, employee and employer both will contribute Rs. 4800 per month towards the EPF account.