Why your take-home salary may rise soon

The government wants to reduce the rate of contribution - part of the employee’s share - for a class of workers depending upon age, income or gender, without changing the contribution from the employer’s share.

Illustration: Dominic Xavier/Rediff.com

The government has proposed to reduce the contribution made by employees towards the Employees’ Provident Fund (EPF), in a move to increase take-home salary.

The government wants to reduce the rate of contribution - part of the employee’s share - for a class of workers depending upon age, income or gender, without changing the contribution from the employer’s share.

The proposal is part of the proposed Employees’ Provident Fund and Miscellaneous Bill, 2019.

The ministry has also proposed providing an option to workers to switch between the pension scheme, monitored by the Employees’ Provident Fund Organisation (EPFO), and the National Pension System (NPS), administered by the Pension Fund Regulatory and Development Authority.

Employees have been given an option to move back to the Employees’ Pension Scheme if they are unsatisfied with the NPS.

“Flexibility has been proposed to be introduced in the (EPF and MP) Act to prescribe different rates of contribution for such period for any class of employee,” the labour ministry’s proposal said.

It has added, “No change in employers' contribution has been proposed.”

These steps were among the announcements made by late finance minister Arun Jaitley in his Union Budget 2015-16 speech.

Although Jaitley had said “for employees below a certain threshold of monthly income, contribution to EPF should be optional”, a government official clarified the ministry has decided to instead introduce an enabling provision to reduce the rate of a worker’s PF contribution instead of doing away with it completely.

“The worker’s share cannot be made optional completely as there has to be some sort of a social security cover,” a government official explained.

At present, 24 per cent of a worker’s basic pay is deducted - with 12 per cent each counted as employer’s and employee’s share - towards the EPF savings.

This is compulsory for employees earning up to Rs 15,000 a month.

All establishments employing at least 20 workers are required to pass on the PF benefits.

In what may come as a major relief to employers, the government wants to restrict the duration at five years for which records of companies can be checked by inspectors.

At present, inspectors are allowed to assess dues and inspect old records with no time limit, turning into a cause of “harassment” for companies.

“Section 7 A of the Act does not provide any limitation for initiation of inquiries (i) to decide applicability of the Act to an establishment and (ii) to determine the amount due from any employer under any provision of the Act and the schemes framed thereunder.

"Such a provision is susceptible to misuse and against a predictable policy for an employer or establishment,” the ministry said.

In case of the Employees' State Insurance (ESI) Act, 1948, and Income Tax Act, a cap of five and seven years have been proposed, respectively.

“Further, to instil discipline in the working of assessing officers”, the government has suggested a time period of two years for inspectors to conclude their inquiries, under this Act.

Otherwise, inspectors will have to submit reasons in writing to the EPFO's central provident fund commissioner.

The labour ministry has proposed a tenfold increase in the quantum of fine for contravening the provisions of the Act.