Last Updated : Nov 12, 2020 05:03 PM IST | Source: Moneycontrol.com

Finance Minister’s EPF relief: In-hand salary for new, rehired employees set to increase

The EPF benefit is restricted to low-income employees drawing a salary of up to Rs 15,000 per month

In a bid to boost employment in the country, Finance Minister Nirmala Sitharaman on Thursday announced a slew of measures, including the Aatmanirbhar Bharat Rozgaar Yojana to encourage fresh hiring.

Funding PF contributions

Under this scheme, the central government will make the employees’ provident fund (EPF) contributions of employees and employers for two years. Ordinarily, employees have to contribute 12 percent of their salary towards EPF and employers have to match this contribution every month. So, now, the government will take care of the aggregate contribution of 24 percent.

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However, it has laid out a list of parameters for organisations to be eligible for this scheme. For one, the benefits will be restricted to employees who earn up to Rs 15,000 a month. More importantly, it will be applicable only to new employees who have been hired after October 1, 2020. New employees would also include individuals who were laid off after March 1, 2020 and landed jobs again after October 1, 2020. The scheme will be valid for recruitments made till June 30, 2021.

In the case of companies with employee strength of up to 1,000, the government will pick up the tabs for employee as well as employer contributions. For establishments employing over 1,000 staff, only employee contributions will be financed by the government. Termed a subsidy support, the amount will be credited to Aadhaar-seeded EPFO accounts of eligible employees.

More money in-hand for employees

The objective of the move is to create more jobs, but for such employees, this will also translate into more money in their hands every month. “The employee will get the subsidy for PF contribution for the next two years. Since the subsidy applies to employees with monthly salary of less than Rs 15,000, they can have more money in their hands, as 12 percent of wages is a reasonable amount at this wage level,” says Archit Gupta, Founder and CEO, Cleartax.

Moreover, at this pay scale, there will be no tax impact either. “This scheme is applicable to employees whose salary is under 15,000 per month. The annual salary of such an employee will be Rs 1.8 lakh. As a result, they will not fall under any taxable bracket,” says Rishi Agarwal, Co-founder and CEO, Avantis Regtech, a Teamlease company.

Since, such employees now have more money in hand, they will also have to make some choices. “If they want to build their retiral fund, they can look at contributing to the voluntary provident fund (VPF) to earn high tax-free and assured returns,” says Saraswathi Kasturirangan, Partner, Deloitte India. EPF interest rate that is declared every year is applicable to VPF too, which is an extension of EPF, except that the contributions are made by employees voluntarily, over and above the mandatory 12 percent. VPF is also eligible for tax benefits under section 80C.
First Published on Nov 12, 2020 05:03 pm
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