New Delhi: The Union Budget on Saturday unveiled an employee-friendly move by making provident fund contribution optional for workers getting salary below a threshold.
Though employer will continue to contribute his share of the PF irrespective of the worker opting not to pay his contribution, the Budget has not made clear what the threshold limit would be.
Finance Minister Arun Jaitley said that “...for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer’s contribution”.
At present, all employees are required to pay 12 per cent of basic wages, including basic salary and DA as contribution to the PF. The employers make a matching contribution, with 8.33 per cent going towards pension, 0.5 per cent towards Employees Deposit Linked Insurance (EDLI) scheme and remaining towards provident fund.
In another proposal for the salaried class, Jaitley said that the members of private provident fund trusts would not have to pay tax on pre-mature withdrawals provided the amount is either less than Rs 30,000 or their tax liability is nil even after including the withdrawn sum to their income. This facility will also be available to senior citizens.
It may be noted that existing provisions mandate the deduction of tax at the time of withdrawal in respect of pre-mature withdrawal.
Under the existing provisions EPF and MP Act, it has been provided that withdrawal shall be taxable if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, closure of business, etc) and does not opt for transfer of accumulated balance to new employer.
It is proposed to insert a new provision in the Act for deduction of tax at the rate of 10 per cent on premature taxable withdrawal from Employees Provident Fund Scheme.
Furthermore, the government has proposed to revamp laws governing salary payment and granting employees a choice over how they get salary, saying it would amend legislation in this regard after consultation with stakeholders.
With respect to ESI, Mr Jaitley said the employee would have the option of choosing either ESI or a Health Insurance product, recognised by the Insurance Regulatory Development Authority (IRDA).
“We intend to bring amending legislation in this regard, after stakeholder consultation,” he added.
According to HR experts, the finance minister has thus created incentives for youth to join the formal sector and curb the decade old trend of growing informal workforce.
