New EPF rule: How your CTC, in-hand salary will change from this month

by | May 20, 2020 | COVID - 19, front_page_filler, Laghu Udyog Bharati (Bharat), main_story, MSME, Recent_Post_Slider, side-posts | 0 comments

  • The statutory contribution in EPF has been cut by 2% each for employers and employees
  • Your salary slip for the three months of May, June and July will change

NEW DELHI : With employees’ provident fund (EPF) rules being changed for three months from May, your in-hand salary will increase but without a change in your total CTC (cost to company). To ease liquidity pressure on both employers and employees, the government has announced that statutory rate of contribution for both parties will be reduced from 12% to 10%.

At present, the employers and the employees contribute 12% each (total 24%) of the basic salary and dearness allowance (DA) to the retirement kitty run by the Employees’ Provident Fund Organisation (EPFO). Under the new rules, this 12% is being cut to 10% (total of 20%) for three months of May, June and July.

This means that the salary you will get in-hand for this month will be higher by a sum equivalent to 4% of your basic and DA.

For example, if your monthly basic and DA is ₹10,000, both you and your employer will contribute ₹1,000 each instead of ₹1,200 each to the EPF account. You would, therefore, get ₹400 more (both employer’s and employee’s contribution) as in-hand salary.

The labour ministry has issued a statement clarifying this.

“As a result of reduction in statutory rate of contributions from 12% to 10%, the employee shall have a higher take home pay due to reduction in deduction from his pay on account of EPF contributions and employer shall also have his liability reduced by 2% of wages of his employees,” the ministry said.

“If ₹10,000 is monthly EPF wages, only ₹1,000 instead of ₹1,200 is deducted from employee’s wages and employer pays ₹1,000 instead of ₹1,200 towards EPF contributions. In Cost to Company (CTC) model, if ₹10,000 is monthly EPF wages, the employee gets ₹200 more directly from employer as employer’s EPF/EPS contribution is reduced and ₹200 less is deducted from his/her wages,” it said.

The labour ministry has also said that employees, if they want, can contribute more than 10% of basic wages to their provident fund (PF) for the next three months, but employers don’t need to match the higher contribution.

The reduction of rate of contribution is not applicable to establishments like Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Government or State Government.  These establishments shall continue to contribute 12% of basic pay and DA.

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