EPF: How SC's order will impact your take home salary

In an interview to CNBC, Pankaj Mathpal, Optima Money Managers clarified doubts regarding the employees' provident fund.

The circular issued by Employees' Provident Fund Organisation (EPFO) on 30th November, clarifies that all allowances which are ordinarily, necessarily and uniformly paid to the employees should be treated as basic wages.

While clarifying the impact on take home salary of an employee if the circular comes into effec he says, for example if employee derives a  salary is Rs 50,000 but the basic is only Rs 10,000, then right now the employee is contributing only Rs 1,200 to his EPF account ( EPF is 12 percent of basic). But if the circular comes into effect then that 12 percent will be calculated on his full salary ofl Rs 50,000, which means employee will contribute Rs 6000 to his PF account.

He further states that one cannot withdraw the EPF even if he is changing jobs, one has to transfer that account to the next employer. Withdrawal is only possible if he is unemployed for more than two months.

Below is the edited transcript of his interview on CNBC-TV18

Q: There is a Supreme Court ruling that mandates that Employees' Provident Fund (EPF) to be given as a portion of the employees Cost to Company (CTC) and not as portion of the basic salary earlier? Can you take us through the implications? Will we all have less take home money now or is there a way to opt out of it?

A: When an employee joins EPF, he contributes 12 percent of his salary and the same amount is contributed by the employer. Until now, for the purpose of calculation, the salary was considered on the basic and your dearness allowance.

But following a court judgement Employees' Provident Fund Organisation (EPFO) has issued a circular on 30th November, which clarifies that all allowances which are ordinarily, necessarily and uniformly paid to the employees should be treated as basic wages.

So, it means for example if your salary is Rs 50,000 and out of that basic is only Rs 10,000 right now you are contributing 12 percent of Rs 1,200. But now after effect of this circular that 12 percent will be calculated on full Rs 50,000.So in this case you will contribute Rs 6,000 in your EPF. So your take home salary will decrease. But saving in your Provident Fund (PF) will increase. So that will be the impact on your take home salary.

Caller Q: I have changed my job and my previous employer is not giving me my Form 3A, which is required to transfer the PF to the new company. He is only giving me a Xerox, which the new company is not willing to take. So should I withdraw my PF or should I get it transfer? What is the procedure if he doesn’t give me the original document?

A: Application for transfer is to be submitted in Form 13. It is a revised form, which has to be submitted to your new employer. Your new employer will take care to submit it to PF Commissioner. As far as withdrawal is concerned, you cannot withdraw till you continue with your services.

Only if you have been unemployed for two months from your first job, only then you can withdraw. In your case since you have joined  a new job, you have to transfer only. You cannot withdraw this amount.