For Quick Alerts
For Daily Alerts

EPF Contribution: Why Employees And Employers May Want To Stick To 12%?


The Employees' Provident Fund Organisation (EPFO) has now provided clarification on the reduction of contribution towards EPF (Employees' Provident Fund) for the months of May, June and July as part of the government's Atmanirbhar Bharat Package. The pension fund manager has said that you, as well as your employer, have a choice to continue to contribute 12 percent of your basic salary as PF contribution instead of the temporary reduction to 10 percent.

EPF Contribution: Why Employees And Employers May Want To Stick To 12%?

You must be aware that the central government announced that employees and employers can lower their PF contributions for the months of May, June and July to 10 percent (of basic salary plus dearness allowance), to provide them with additional cash, so as to help ensure liquidity amid the COVID-19 pandemic for those facing a cash crunch.

The Finance Ministry said that the move would help 4.3 crore employees and 6.5 lakh organisations.


If your basic salary is Rs 30,000 per month, your EPF contribution will be lowered from Rs 3,600 (12%) to Rs 3,000 (10%). EPFO in its clarification said, "The reduced rate of contribution (10 per cent) is the minimum rate of contribution during the period of the package. The employer, employee or both can contribute at a higher rate also," which means that both employer and employee can continue to contribute Rs 3,600.

Alternatively, if your employer chooses to contribute Rs 3,000, you can still continue with Rs 3,600 as a contribution.

Tax implications

Whether you choose to opt for the old or new tax regime, EPF contribution is not taxable up to the extent of 12 percent of your basic pay in a single financial year.

Continuing with the above example, if you choose to contribute 10 percent towards EPF only, you will receive Rs 600 per month extra for 3 months as cash in hand or Rs 1,200 (if the employer chooses to give the reduced EPF contribution to you). This will increase your annual taxable income by Rs 1,800 or Rs 3,600.


If you are not facing severe cash crunch or have not experienced pay cut, additional income from this reduced contribution will not be significant for you and you could continue to contribute your 12 percent of the share towards your retirement fund.

However, for organisations where employers' contribution is part of the employees' cost-to-company (CTC) package, the change lacks clarity.

EPFO said, "In the CTC model, if Rs 10,000 is the monthly EPF wage, the employee gets Rs 200 more directly from the employer as the employer's EPF/EPS contribution is reduced and Rs 200 less is deducted from his/her wages." The statement raises confusion on how the reduction in EPF would benefit the employer in such a case as they will be giving it to the employees and not using it for their own capital needs.

Hence, employers following the CTC framework may continue with the 12 percent EPF contribution as their outgo will remain the same.

If your employer has decided to opt for the 10 percent contribution, such a disclosure may have been made by them. Also, you will have to check if the employer plans on making this transfer of additional cash under a different head in your salary slip.

Planning your taxes

If you or your employer does choose to make a lower contribution, it will not make any difference to you as an individual taxpayer under the new tax regime. However, if you choose to opt for the old tax regime, you may want to look at how it will affect your section 80C exemptions and deductions for the whole financial year.

Read more about: epf pf provident fund
Company Search
Get Instant News Updates
Notification Settings X
Time Settings
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X
We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more