Employee Provident Fund or EPF, Budget 2018 proposalsAccording to the proposals of Budget 2018, the Central Government will contribute to the Employees’ Provident Fund (EPF) accounts of new employees and reduce the mandatory contribution for women. Here are the details:

Budget 2018 provides has two major proposals for the EPF:

  1. The Government will contribute 12% of the wages of new employees for the next three years, instead of employers. This is expected to incentivise employers to enrol more workers into the EPF.
  2. It provides that the mandatory contribution for women will be reduced from 12% to 8% for the first three years after their joining. This is aimed at increasing their ‘in-hand’ pay.

What is the EPF?

The Employees’ Provident Fund or EPF was set up in 1952 to provide social security to organised sector workers. Organisations employing 20 or more workers have to enroll staff who are paid up to Rs 15,000 per month in the EPF. They can also enroll workers on higher salaries, but this is optional. (The government is also considering proposals to hike the wage ceiling for compulsory registration under the EPF to Rs 21,000 as we write here.)

Both the employer and the employee contribute 12% of an employee’s salary to his EPF account. These contributions are tax-deductible up to Rs 1.5 lakh per annum under Section 80C. This amount is managed by the Employee’s Provident Fund Organisation (EPFO) which declares an annual rate of interest. The EPF interest and maturity amount is tax-free and the corpus matures at the age of 58.

However, you can also withdraw it after two months of being unemployed. In addition to a lump sum on maturity, the EPF also pays out a pension called the Employees’ Pension Scheme (EPS) which is a component of the EPF. The EPS is calculated based on a formula related to number of years of service

When will the change go into effect?

The Government will have to amend the Employees Provident Fund and Miscellaneous Provisions Act, 1952 before the Budget proposals can go into effect.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.