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Interest rate on PF deposits increased to 8.65% from 8.55% for the FY 2018-19.

Finance Minister Nirmala Sitharaman announced this measure as part of the Atmanirbhar Bharat Package, in order to provide relief to the employers and also to increase the monthly take-home pay of employees and reduced the EPF contribution from 12% to 10% for both employers and employees.

Recent Changes in the Employees Provident Fund Act (EPF)

Women form an indispensable part of a thriving economy. Tremendous efforts have been made by the government to boost female representation in the mainstream. However, the economic survey had an altogether different story to tell. Around 12 million people enter the job market every year, the growth in the jobs has been much lower.

As per the latest economic survey, a substantial drop has been noticed in the female labour force participation from 36% in 2005-06 to 24% in 2015-16. Even at the global level, India is way behind other countries. In India, the female labor participation rate is below 25% as against the global rate of 40%.

Budget 2018 came in as an opportunity to bridge this employment gap. Incentivizing female participation in the formal sector happened to be one of the critical objectives of the union government. Another goal had been to increase the take-home pay of new female employees.

With this in mind, the finance minister proposed to effect amendments in the Employees Provident Fund and Miscellaneous Provisions Act, 1952 as regards employee contributions.

Prior to the amendment, every employee had to contribute 12% of his or her basic salary towards EPF as a statutory mandate. A matching contribution was made by the employer too.

But in the union budget 2018, the EPF contribution rate for the newly recruited female employees has been reduced from 12% to 8%. This privilege will be available to the new female employees for the first three years of employment.

The contribution from the employer’s end towards EPF, although, will continue to be at the rate of 12%. Additionally, the government has proposed to contribute 12% of the wages of new employees towards EPF this is applicable to all the sectors of the economy for the next three years.

The rationale behind this move has been to lessen the payroll cost of the employers. The government intends to share the burden of provident fund facility as regards to new employees. Moreover, this move is aimed at creating fresh job openings across sectors.

Wage parity has been a key factor in increasing number of working women in the organized sector. There was high demand to reduce the gap between on-paper and take-home salary of an employee.

The latest move of the government regarding increasing the take-home pay of female employees would be an impetus in the said direction. Looks like the finance minister would be successful to address the key requirement of the job seekers and job providers.

Considering the general elections ahead in 2019, the government is leaving no stone unturned to strengthen its potential.

  • What is the revised rate of EPF contribution announced by the Central govt. under Atmanirbhar Bharat Package?

    Under this package, the statutory rate of EPF contribution of both employer and employee has been reduced to 10 percent of basic wages and dearness allowances from existing rate of 12 percent for all class of establishments covered under the EPF & MP Act, 1952

  • What is the objective of reduction in rate of contributions?

    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.

  • What is the period for which reduced rate of contribution is applicable?

    The statutory rate of contribution will be 10% for wage months – May 2020, June 2020 and July 2020.

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