EPF reduction: Your take home salary to increase but be prepared for income tax liability

Finance Minister Nirmala Sitharaman had on May 13 announced reduction in EPF contribution for the next three months.

New Delhi: Employees working in private sector will get more take home salary for three months –May, June and July –as the government has announced reduction in EPF contribution for the month of May, June and July.

But, reduction in employee’s share of contribution from 12% to 10% will make the remaining 2 percent salary liable for income tax. If an employee does not choose to spend the 2 percent PF amount in tax-saving investments, their income tax liabilities will increase.

It will also at the same time reduce the contribution to the PF by an equivalent amount. Meanwhile, some companies are offering employees the option to choose to opt for contribution of an additional 2% for the aforesaid three months though there will be no change to the Employer Contribution.

Finance Minister Nirmala Sitharaman had on May 13 announced that for the next three months employee provident fund (EPF) contribution will be 10 per cent each for employees and employers as compared to the statutory obligation of 12 per cent. The move is to increase take-home salary for employees and to give relief to employers in payment of provident fund.

The government has decided to continue EPF support for business and workers for 3 more months providing a liquidity relief of Rs 2,500 crores, the FM said. Under this new provision, the employers will continue to pay 12 per cent, while employees will have the option to pay 10 per cent for the next three months.

This will benefit nearly 4.3 crore provident fund subscribers and and as many as 6.5 lakh establishments will also avail this benefit from this.

However, this does not apply to those companies where government is giving the entire 24 percent contribution towards EPF.

Furthermore, in the case of the central public sector enterprises and state public sector, this exempt will not be applicable. They will continue to pay 12% as EPF contribution.