Union Budget 2015: PF contribution made optional for employees

In an employee-friendly move, the government today made provident fund contribution optional for workers getting salary below a threshold.

However, the employer will continue to contribute his share of the PF irrespective of the worker opting not to pay his contribution.

“…for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer’s contribution,” Finance Minister Arun Jaitley said in his budget speech.

The budget proposals, however, did not specify the salary threshold for this.

At present, all employees are required to pay 12 per cent of basic wages including basic salary and DA as contribution to the PF. The employers make a matching contribution, with 8.33 per cent going towards pension, 0.5 per cent towards Employees Deposit Linked Insurance (EDLI) scheme and remaining towards provident fund.

Also the budget has provided that the members of private provident fund trusts will not have to pay tax on pre-mature withdrawals provided the amount is either less than Rs 30,000 or their tax liability is nil even after including the withdrawn sum to their income.

This facility will also be available to senior citizens.

As per existing provisions, in respect of such pre-mature withdrawal, the trustees of the recognised provident fund (trusts), shall deduct tax as computed at the time of payment.

Under the existing provisions EPF & MP Act, it has been provided that withdrawal shall be taxable if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, closure of business, etc) and does not opt for transfer of accumulated balance to new employer.

It is proposed to insert a new provision in the Act for deduction of tax at the rate of 10 per cent on premature taxable withdrawal from Employees Provident Fund Scheme (EPFO).

Jaitley also said employees will get to choose between EPF scheme run by retirement fund body EPFO and the New Pension Scheme (NPS) as also between and health insurance products and Employees State Insurance Corporation’s (ESIC) health cover.

“With respect to the EPF, the employee needs to be provided two options. Firstly, the employee may opt for EPF or the New Pension Scheme (NPS),” Jaitley said.

He further said employees should have an option of choosing either ESI (health cover) or a health insurance, recognised by the Insurance Regulatory Development Authority.

He said the government intends to amend legislation in this regard, after consultation with stakeholders.

At present, over five crore workers are covered under the mandatory social security schemes run by the Employees’ Provident Fund Organisation (EPFO).

The NPS is applicable to all employees of central government service (except Armed Forces) and central autonomous bodies joining service on or after January 1, 2004.

Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model” as it is open for all.

At present, about two crore workers (and their families) are provided mandatory health insurance by the ESIC.

Jaitley said: “The situation with regard to the dormant EPF accounts and the claim ratios of ESIs is too well known to be repeated here. It has been remarked that both EPF and ESI have hostages, rather than clients…the low paid worker suffers deductions greater than the better paid workers, in percentage terms.”

The Minister also announced using unclaimed deposits of about Rs 3,000 crore in the PPF, and Rs 6,000 crore in the EPF corpus to create a Senior Citizen Welfare Fund.

This corpus will be used to subsidise the premiums of vulnerable groups such as old age pensioners, BPL card holders, small and marginal farmers and others. A detailed scheme would be issued in March.

Source: FE