EPF rate reduced from 12 % to 10 % for the month of May, June & July, 2020

Since the last 3 months, the country has been under lock down, during this period not only the health of the people has been in danger but the economic condition of people and the country as a whole has been at stake. Now to deal with this economic crises, the Government has announced 20 lakhs crores package along with some measures to infuse liquidity in the system and provide more funds at the disposal of individuals and MSMEs. Now the Government has announced reduced rates for EPF contribution (Provident Fund contribution).

In a bid to provide more take home salary to employees and also give some relief to employers in payment of Provident Fund (PF) dues, the FM announced reduction in statutory PF contribution of both employer and employee to 10% each from the existing 12% each for all establishments covered by EPFO for the next 3 months.

Applicability of the reduced rates of EPF

The EPF Amendment is applicable to all establishments except:

• Central/State Public Sector Enterprises
• Establishments owned or controlled by the government
• Establishments covered under the Pradhan Mantri Garib Kalyan Yojana (for whom the Central Government is already contributing both the employer’s and employee’s share – at the rate of 12percent – for the period from March to August 2020).

Some important Facts about the reduced Rates of EPF Contribution

• The statutory rate of EPF contribution will be applicable to both employer and employees.
• The reduced rate would be applicable for May 2020, June 2020 and July 2020.
• Reduction in rate of EPF contributions from 12% to 10% of basic wages and Dearness allowances is intended to benefit both 4.3 crore employees/members and employers of 6.5 lakh establishments to tide over the immediate liquidity crisis to some extent during pandemic situation.
• It is not compulsory for the employer and the employee to opt for a lower contribution.
• Where employer’s contribution is part of the CTC of the employee, an option may be given to the employee to expressly opt for the rate at which the contribution should be made by the employer and the rate at which the contribution should be deducted from his / her salary.
• The employers and employees can opt for various combinations of EPF contribution such as both employer and employee can opt for a lower contribution of 10% or both can continue with 12% contribution or employer can opt for 10% contribution while an employee can continue to contribute 12% or the employer can contribute 12% while the employee can opt for a lower contribution of 10%.
• The employee may avail an option to contribute in excess of 10% of monthly pay subject to the condition that the employer shall not be under any obligation to pay any contribution over and above the contribution payable under the Provident Fund Act.
• The reduced rate of EPF contributions to 10% will not reduce the pension contributions or benefits.
• The benefits under the EPF Amendment will also have to be implement in the exempted establishments.
• It does not apply to establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojna.
• The employers who are unable make timely payments will be able to avail the benefits of the reduced rate of the contributions under the EPF Act, irrespective of the date of payment.

The EPF Amendment has been promulgated with the aim to provide liquidity in the hands of employers and employees. Simply put, since the employer and employee will both be making PF contributions at the rate of 10 percent instead of 12 percent, the cash equivalent of 2 percent of the employees’ salary will become available to both the employer and employees.

Know more on: Various steps taken by the Government of India amid COVID 19 outbreak.