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EPF fallout: Govt may tweak EPS contribution norms for employers

New Delhi: Not giving up after being forced to bite the bullet on its Budget proposal to individuals withdrawing their Employers Provident Fund (EPF), the government is now working on a fresh strategy over its

India TV Business Desk [ Published on: March 10, 2016 14:55 IST ]
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New Delhi: Not giving up after being forced to bite the bullet on its Budget proposal to individuals withdrawing their Employers Provident Fund (EPF), the government is now working on a fresh strategy over its goals to create a pensioned society.

As part of its fresh approach, which will now involve greater consultations from stakeholders, has a slew of considerable changes in norms that govern pensions in India as of now.

One of the major changes under consideration is a proposal that makes it mandatory for employers to route a majority of their share towards the retirement savings of employees into the Employee Pension Scheme (EPS) rather than EPF for employees above the salary threshold of Rs 15,000 per month.

As per current norms, a private sector employer matches the total PF contributions made by an employee to EPF, which constitutes 12 per cent of basic salary by each. While the entire bulk of the employee’s contribution goes to EPF, 8.33 per cent of the employer’s payment goes to EPS subject to a maximum of Rs 1,250 a month (8.33 per cent of Rs 15,000)

Norms currently under consideration would restructure the employer’s contribution and channelize a greater amount to the EPS instead of the EPF. The new norms propose that those earning more than Rs 15,000 a month will see a higher share of the employer’s contribution going to EPS.

The idea behind the proposal to make making employers contribute more to EPS than EPF is to pave way for a pensioned society where an employee has a steady flow of income post-retirement instead of the current practice where retired employees withdraw the entire amount from the EPF in one go.

Both EPF (Employees’ Provident Fund Scheme 1952) and EPS (Employees’ Pension Scheme 1995) are different retirement saving schemes under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, meant for salaried employees.

The government’s understanding is that restructuring the norms for EPS contributions could help it maintain a parity between EPF and the General Provident Fund as the former will continue to enjoy exempt-exempt-exempt (EEE) status at the stages of investment, accumulation and payout.

According to official sources privy to the development, though the proposal has drawn a near agreement from the highest levels, it will only be introduced after extensive consultations. Having burnt its hands over the EPF tax proposal, the government wants inputs from all stakeholders before going forward with any such move.

Earlier too, the government used to contribute 1.16 per cent to the pension kitty of every EPF member as part of EPS run by the EPFO to offer a pension for life after the age of 58. However, this subsidy was withdrawn in September 2014 for those earning above Rs 15,000 per month. 

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