- Date : 01/10/2019
- Read: 3 mins
The proposed changes in the Provident Fund Act that stands to increase employee’s in-hand salary in the days to come
The government is planning on various changes in the Provident Fund Act, notable among which is the lowering of the PF contribution rate in case of both employer and employee. A look at any in-hand salary calculator will now show an increase in the take-home salary of the employees. However, it will also reduce the amount of savings that goes into an employee’s PF account every month.
At present both employee and employer contribute 12% of their salary towards the EPF which goes on to earn a healthy interest rate and build a retirement corpus. An employee is free to contribute even 100% per cent of the basic pay. However, as one can see in EPF employer login, the employer’s contribution is fixed at 12%. The proposed amendment in the Act will reduce the PF contribution of both the employee and the employer to 10%. The draft bill will also notify the specific rate of contribution and the period for which it will be applicable, along with the class of employee to whom it will be applicable. Thus, a particular rate will be applicable for certain employees and for a predefined period.
While this will increase the money in the hands of the employees at the end of the month, it will reduce their savings. PF is like a savings scheme that has been forced upon employees to secure their post-retirement future, or in the event of unemployment. However, it also means that employees will have more money in their hands and will have the choice of using/investing it as per their discretion.
The Employees’ Provident Funds & Miscellaneous Provisions (EPF and MP) Act, 1952 is applicable to all organisations with 20 or more employees. The Ministry of Labour and Employment plans to amend it and come up with a newer version of it, to be called Employees’ Provident Funds and Miscellaneous Provisions (Amendment) Act, 2019.
What are the effects of these amendments?
The immediate effect of the rate reduction will be increased in the in-hand salary of the employees. However, the extra cash will mean a reduction in savings. The government will have greater control in making changes in the PF rates, something which even RSS-backed trade unions are not very comfortable with.
Where is PF amount invested?
PF funds are mostly invested in various debt instruments that promise safe investment and guaranteed return. A portion of EPFO fund must mandatorily be invested in government securities. Investments have also been made in equity instruments in the form of exchange-traded funds.
How much does PF yield?
The PF rate of interest is notified by the Labour Ministry from time to time. The ministry notified a rate of interest of 8.65% on Employee’s Provident Fund for the year 2018-19. In the year 2017-18, the rate was 8.55%. At the declared rate of interest, interest amount of Rs. 54,000 crores will be credited to the PF accounts of over 6 crore subscribers. The EPFO will also make PF online payment against PF claims, at this notified rate. Do you know to withdraw PF online? Here's how