EPF cut in employee contribution means take-home is high but will increase TDS liability; here's all you need to know

The Ministry of Labour and Employment has implemented the decision to cut employees' provident fund (EPF) contributions to 10 percent from the existing 12 percent for three months till July.

This would increase 4.3 crore organised sector employees' take-home pay and reduce the liability of 6.5 lakh employees reeling under liquidity crunch under lockdown to contain COVID-19.

The decision is estimated to infuse liquidity of Rs 6,750 crore in the next three months.

 EPF cut in employee contribution means take-home is high but will increase TDS liability; heres all you need to know

Representational image. PTI

In line with the relief measures announced in the economic stimulus package, the labour ministry notified the lower rate of contribution to EPF accounts. The EPF contribution of 12 percent stands reduced to 10 percent of the basic salary and dearness allowance for the next three months, May, June and July 2020.

A reduction in the EPF contribution will increase the take-home salary of employees. An employee’s CTC (salary package) generally includes only their contribution to PF.

Archit Gupta, Founder and CEO, ClearTax  - a fintech company said, one should also note that a reduction in PF contribution reduces tax deduction and increases their TDS liability. Hence, the monthly increase in take-home salary stands reduced by a marginal rise in TDS liability. In case the CTC includes both the employer’s and the employees’ contribution, then the take-home salary increases by 4 percent of the basic salary minus the TDS liability.

Employers may not pass the benefit of reduction in their share of PF contribution to their employees. Thus, an employee may benefit to the extent of 2 percent of salary minus TDS, as illustrated below:

EPFO table

The statutory contribution to PF stands at 10 percent for three months. However, an employee can voluntarily contribute a higher amount to their EPF account and claim a tax deduction for such contribution, in case such an employee opts for the old regime.

The reduced rate of contribution applies to all establishments covered under the EPFO. However, CPSEs, State PSUs and other Central Government or State Government-owned establishments will continue to contribute 12 percent. The reduction is estimated to provide relief to 6.5 establishments benefitting about 4.3 crore employees with a slightly higher take-home salary.

The EPFO provides various services to its members such as withdrawing balance, advance during the COVID-19 pandemic, transfer of PF account and so on. To avail of any of the services, a member’s EPF account should be KYC compliant. Employees can log-in to the member e-Sewa portal and check their KYC compliance status using their UAN. In case your KYC is completed, the UAN card will display ‘Yes’.

UAN is a Universal Account Number allotted by the EPFO to its members. In case your KYC is not complete, here's what you can do:

  • Visit the e-Sewa portal at https://unifiedportal-mem.epfindia.gov.in/memberinterface/
  • Log in with your UAN and password and click on ‘KYC’ under ‘Manage’ tab
  • You should link your PAN, Aadhaar and bank account with your UAN and upload the necessary documents. You should provide details of the proofs uploaded.

The following documents can be uploaded to complete the KYC:

  • PAN
  • Aadhaar
  • Passport
  • Bank statement
  • Driving license
  • Ration card
  • Election card
  • National population register

After uploading the documents, save the changes.

You should also submit the documents to your employer. Your KYC will be pending for approval until your employer verifies the proofs uploaded. Upon approval, the status of the KYC proofs uploaded will display as ‘approved by the establishment’. You can view the status under ‘Digital Approved KYC’ section under the KYC option, Gupta added.


Updated Date: May 21, 2020 15:00:15 IST

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