{"id":1274,"date":"2020-05-26T18:06:20","date_gmt":"2020-05-26T12:36:20","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=1274"},"modified":"2021-04-06T11:35:20","modified_gmt":"2021-04-06T06:05:20","slug":"how-good-is-the-cut-in-your-epf-contribution","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/","title":{"rendered":"How good is the cut in your EPF contribution?"},"content":{"rendered":"\n<p>Your EPF contribution is perhaps a vital constituent of your retirement fund, mainly because it is mandatory. Here, both you and your employer contribute 12% of your basic salary and <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-dearness-allowance\/\">dearness allowance<\/a> to your EPF every month.<\/p>\n\n\n\n<p>But last week, FM Nirmala Sitharaman declared a 2% reduction in EPF contribution for 3 months (May, Jun, Jul). However, whether it is mandatory is yet to be disclosed. As such, both you and your employer may contribute only 10% of salary to your EPF account. Let us understand the implications of this change in the EPF rules.<\/p>\n\n\n\n<p>This article contains:<\/p>\n\n\n\n<p><a href=\"#cut\">Why the cut in contribution to Employees\u2019 Provident Fund?<\/a><\/p>\n\n\n\n<p><a href=\"#implications\">What are the implications of the cut in the contribution?<\/a><\/p>\n\n\n\n<p><a href=\"#tax\">Increase in employees\u2019 tax incidence<\/a><\/p>\n\n\n\n<p><a href=\"#retirement\">Decrease in employees\u2019 retirement savings<\/a><\/p>\n\n\n\n<p><a href=\"#EPF-part-of-CTC\">When employer\u2019s EPF contribution is part of your CTC<\/a><\/p>\n\n\n\n<p><a href=\"#EPF-not-part-of-CTC\">When employer\u2019s EPF contribution is not part of your CTC<\/a><\/p>\n\n\n\n<p><a href=\"#new-rules\">Scope of the new EPF rules<\/a><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Why-the-cut-in-contribution-to-Employees-Provident-Fund\" title=\"Why the cut in contribution to Employees\u2019 Provident Fund?\">Why the cut in contribution to Employees\u2019 Provident Fund?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#What-are-the-implications-of-the-cut-in-the-contribution\" title=\"What are the implications of the cut in the contribution?\">What are the implications of the cut in the contribution?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Increase-in-employees-tax-incidence\" title=\"Increase in employees\u2019 tax incidence&nbsp;\">Increase in employees\u2019 tax incidence&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Decrease-in-employees-retirement-savings\" title=\"Decrease in employees\u2019 retirement savings\">Decrease in employees\u2019 retirement savings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Employers-EPF-contribution-is-part-of-your-CTC\" title=\"Employer\u2019s EPF contribution is part of your CTC\">Employer\u2019s EPF contribution is part of your CTC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Employers-EPF-contribution-is-not-part-of-your-CTC\" title=\"Employer\u2019s EPF contribution is not part of your CTC\">Employer\u2019s EPF contribution is not part of your CTC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/how-good-is-the-cut-in-your-epf-contribution\/#Scope-of-the-new-EPF-rules\" title=\"Scope of the new EPF rules&nbsp;\">Scope of the new EPF rules&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\" id=\"cut\"><span class=\"ez-toc-section\" id=\"Why-the-cut-in-contribution-to-Employees-Provident-Fund\"><\/span><strong>Why the cut in contribution to <\/strong><strong>Employees\u2019 Provident Fund<\/strong><strong>?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Slashing the EPF contribution rate was considered in the wake of COVID-19, which has impacted employers and employees alike. This move is aimed at&nbsp;offering relief to stakeholders by:<\/p>\n\n\n\n<ul><li>Increasing the take-home salary of 4.3 crore employees of the organised sector<\/li><li>Relieving 6.5 lakh employers in payment of EPF dues<\/li><li>Injecting liquidity of Rs 6,750 crore to both employers and employees over the said 3 months<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"implications\"><span class=\"ez-toc-section\" id=\"What-are-the-implications-of-the-cut-in-the-contribution\"><\/span><strong>What are the implications of the cut in the contribution?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The reduction in your share of EPF contribution would offer you relief as it adds to your take-home salary. However, the new rules are not free of cons. Let us examine the following scenarios that justify why.<br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"tax\"><span class=\"ez-toc-section\" id=\"Increase-in-employees-tax-incidence\"><\/span><strong>Increase in employees\u2019 tax incidence<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Your share of EPF contribution is eligible for a tax deduction under Section 80C of <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-income-tax\/\">Income Tax<\/a> Act 1961. Ergo, a reduction in your contribution would reduce your investment in the said section and thus increase your tax liability for the fiscal year 2020-2021.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"retirement\"><span class=\"ez-toc-section\" id=\"Decrease-in-employees-retirement-savings\"><\/span><strong>Decrease in employees\u2019 retirement savings<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The beauty of EPF is that it promotes retirement savings. Also, it mandates you and your employer to contribute 12% of your basic salary to your EPF account every month. Meaning you and your employer don\u2019t have a say in this and can\u2019t refuse to contribute to your EPF. But with the new rules announced, only 20% and not 24% of your salary would be invested in your EPF account. This would mean lower retirement savings.<\/p>\n\n\n\n<p>A pro tip here is to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> the difference of 2% in your share of EPF contribution. Since EPF is meant for your retirement mostly, you can consider investing the difference in your contribution in tax-friendly and low-risk investments. Speaking of your employer\u2019s share of contribution to EPF, it is not free of cons. Let us examine two scenarios that justify why.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"EPF-part-of-CTC\"><span class=\"ez-toc-section\" id=\"Employers-EPF-contribution-is-part-of-your-CTC\"><\/span><strong>Employer\u2019s <\/strong><strong>EPF contribution<\/strong><strong> is part of your CTC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Understand that your employer&#8217;s contribution to your EPF account is in addition to your monthly salary. In some instances, employer\u2019s contribution is agreed to be a part of your <a href=\"https:\/\/www.tickertape.in\/blog\/difference-between-ctc-and-inhand-salary\/\">CTC<\/a> (cost to company), which makes it their obligation to pay you the entire 12% of your salary. As such, they may add the difference of 2% to your take-home salary or offer a cash allowance. The latter is taxable, which is a cost to you.<br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"EPF-not-part-of-CTC\"><span class=\"ez-toc-section\" id=\"Employers-EPF-contribution-is-not-part-of-your-CTC\"><\/span><strong>Employer\u2019s <\/strong><strong>EPF contribution<\/strong><strong> is not part of your CTC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In contrast, if your employer\u2019s contribution is not agreed to be part of your CTC, they are not obligated to pay you the difference. While this results in savings for your employer, it is ideally a loss to you. Therefore, whether a reduction in the EPF contribution is a boon or a bane to you depends on your employment terms. Besides, whether the reduction is mandatory or not also decides how it turns out for you.<br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"new-rules\"><span class=\"ez-toc-section\" id=\"Scope-of-the-new-EPF-rules\"><\/span><strong>Scope of the new EPF rules<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>While we are at it, let us also look at when the new Employees\u2019 Provident Fund rules kick in and when they don\u2019t.<\/p>\n\n\n\n<ul><li>The EPF contribution cut would apply to all the organisations covered under the EPFO (Employees&#8217; Provident Fund Organisation). This also includes the PF trusts that are exempted<\/li><li>The cut would not apply to employers belonging to the public sector undertakings (PSUs) and Central Public Sector Enterprises (<a href=\"https:\/\/www.tickertape.in\/blog\/impact-of-governments-efforts-on-cpse-etf\/\">CPSEs<\/a>). This means, their rate of contribution would still stand at 12%<\/li><li>This cut is also applicable to employees not eligible to receive 24% EPF by the government under PM Garib Kalyan Yojana<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The government has announced a 2% cut in yours and your employer&#8217;s EPF contribution. Though this adds to your take-home salary, it may not necessarily be conducive for your overall finances<\/p>\n","protected":false},"author":27,"featured_media":1279,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[10,1744],"tags":[],"acf":[],"modified_by":"Manonmayi","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/05\/EPF.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1274"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=1274"}],"version-history":[{"count":6,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1274\/revisions"}],"predecessor-version":[{"id":2534,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1274\/revisions\/2534"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/1279"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=1274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=1274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=1274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}