Your take home salary may increase as govt plans reducing PF contributions

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The government is planning to bring down the social security contribution from 12 per cent, which is mandatory, to 10 per cent – a move that will increase the take home salary, but at the cost of future savings.

At present, the social security contribution is fixed at 24 per cent ( 12 per cent employee contribution and 12 per cent employer contribution) of an employee’s basic salary.


While employee’s contribution directly goes to provident account, employer’s contribution is divided among provident fund account, pension account, and deposit linked insurance scheme.

According to a report in the Economic Times, a Labour Ministry committee working on the contributory ceiling by the government towards universal social security for all workers is likely to recommend two per cent cut in contribution.

The committee is expected to finalise its recommendation by the end of August, the report said citing a person aware of the matter.

According to the report, the government expects to increase those covered under the social security scheme to 50 crore from the current base of about 10 crore people.

“We are enhancing the scale of coverage by five-fold. Hence, we think that going forward the contribution by and for each worker eligible for a social security cover will come down, benefitting both employee and the employer,” the business daily quoted the official as saying.

Currently, 10 per cent limit is applicable to organisations with less than 20 workers. This could be made uniform for every establishment, the report said.

Earlier in June, it was reported that the EPFO has proposed a cap on the PF amount that can be withdrawn before retirement. The retirement fund body has reportedly proposed that it’s over five crore members be allowed to withdraw only 60 per cent of their total savings or an amount equivalent to three months’ salary – whichever amount is lower – if they are unemployed for one month.

The proposal adds that should a subscriber be unemployed for more than three months, s/he will be eligible to withdraw 80 per cent of his/her PF savings or an amount equivalent to two months’ salary, again the lower of the two.

The report claimed that the decision was taken to create a social security cover for formal sector workers.

Ironically, last year in April, the EPFO had tweaked rules to enable its subscribers to withdraw a higher amount – up to 90 per cent – from their PF savings to make down payment and pay EMIs to buy homes.




Source:- businesstoday