Provident Fund (PF) is an important part of an employee’s financial planning. The PF contribution is a defined contribution made by both the employee and employer towards the employee’s retirement corpus. Recently, the Government of India has introduced some new rules regarding PF deduction and contribution. In this blog, we will discuss these new rules in detail.
Introduction to PF
The Provident Fund is a retirement savings scheme that is mandatory for all employees in India who earn a basic salary of up to Rs. 15,000 per month. The scheme is administered by the Employees’ Provident Fund Organisation (EPFO), which is a statutory body under the Ministry of Labour and Employment.
Under the PF scheme, both the employee and employer make contributions towards the employee’s retirement corpus. The employee contributes 12% of their basic salary towards PF, while the employer contributes an equal amount.
New Rules for PF Deduction and Contribution
The Government of India has introduced some new rules regarding PF deduction and contribution. Let us discuss them in detail.
Change in Basic Salary Limit
The basic salary limit for PF contribution has been increased from Rs. 15,000 per month to Rs. 25,000 per month. This means that employees who earn a basic salary of up to Rs. 25,000 per month will now be eligible for PF contributions. This is a welcome move as it will benefit a larger section of employees who were previously not eligible for PF contributions.
EPF Contribution by Employees
The EPFO has introduced a voluntary contribution scheme for employees who want to contribute more than the mandatory 12% of their basic salary towards PF. Under this scheme, employees can voluntarily contribute up to 100% of their basic salary towards PF. However, the employer is not obligated to match the employee’s voluntary contribution.
This is a good option for employees who want to save more towards their retirement corpus. It is important to note that the additional voluntary contribution by employees will earn the same rate of interest as the mandatory contribution.
The government has also introduced a pension scheme for employees who are not covered under any pension scheme. Under this scheme, the employer will contribute 8.33% of the employee’s basic salary towards the employee’s pension. However, this contribution will be capped at Rs. 1,250 per month.
This is a good move as it will provide a pension benefit to employees who were previously not covered under any pension scheme.
Also read: What is the fees for EPF registration?
Under the new rules, new employees who earn a basic salary of up to Rs. 25,000 per month and are not members of any PF scheme will have to mandatorily enroll in the PF scheme. The employer will contribute 12% of the employee’s basic salary towards PF, and the employee will also have to contribute an equal amount.
This is a welcome move as it will ensure that all new employees who are eligible for PF contributions are enrolled in the scheme.
Change in Contribution for Female Employees
The government has also announced a reduction in the PF contribution for female employees. The employer contribution towards PF for new female employees has been reduced from 12% to 8% for the first three years of employment. However, the employee’s contribution towards PF will remain unchanged at 12%.
This is a good move as it will incentivize employers to hire more female employees and promote gender diversity in the workplace.
The new rules introduced by the government regarding PF deduction and contribution are aimed at benefitting a larger section of employees and promoting greater savings towards retirement. It is important for employees to understand these rules and take advantage of the voluntary contribution scheme if they wish to save more towards their retirement corpus. Employers should also ensure that they