The organized sector employees may soon get an option of increasing their take-home salaries by reducing their monthly contribution to the employees’ provident fund (EPF).
According to reports, the Social Security Code Bill, 2019, which has been approved by the cabinet and is likely to be tabled in Parliament this week, is likely to allow employees to pay less than the current 12% statutory contribution. However, the employer contribution will stay unchanged at 12%.
Notably, it is not yet clear that by what percentage can employees reduce his/her EPF contribution under the new provision.
According to current rules, the mandated EPF contribution is 24% of basic pay, which is divided equally between employers and employees. Such contributions are compulsory for all employees who earn more than Rs 15,000 a month and for all employers with at least 20 workers.
The move basically aims to boost consumption in a slowing economy by putting more money in people’s hands. However, experts warn that such a provision should be used judiciously as it will directly hit the retirement corpus of an employee.
Apart from this, another short-term setback of lower monthly contributions could be lower tax exemptions while filing income-tax returns as EPF contribution up to Rs 1.5 lakh per annum is eligible for exemption under Section 80C of the Income Tax Act 1961.
The bill also reportedly aims to give the benefit of gratuity to the contract workers of any organization on a pro-rata basis. At present, gratuity is received only after completing five years of continuous service at one organization, as per the Payment of Gratuity Act, 1972.
Also, the bill is likely to make mandatory for all such establishments with a staff of at least 10 to give benefits of the Employees State Insurance Corporation (ESIC) scheme to their employees.