Proposed EPF rule will cut your take home salary

In the recent circular sent by Employee Provident Fund Organization (EPFO) has proposed the possible amendment on the EPF contributions. The existing rule says that 12% of basic salary + DA would be deducted towards the EPF contributions and the same amount would be contributed by the employers. The proposal sent by EPFO suggests that, some other allowances exist as part of salary also should be included on the PF calculations. For example, if you have salary components of special allowance, transport allowance, etc. The amount given towards these allowances will be added and calculated the 12% of the deduction for the EPF. In this case, your take home salary would be reduced and the EPF contribution will be increased.

Note that it is only the recommendations to the government, it is not confirmed that this will be implemented. If this proposed rule is implemented, all your allowances will be calculated and increased the amount for EPF which helps you in the long term savings. Your monthly take home will have impact and you need to plan for the monthly budget.

• Invest in EPF for retirement planning
• What is National Pension System (NPS)?
• Difference between NPS and EPF

There are clear advantages in these changes too. This rule enforces the more amount of savings for the future. This reduces the investment on other avenues. If some one don’t have the habit of saving for the future, this makes them compulsory savings without escape. Another advantage is that your employer have to put the same amount of contributions, this makes your savings still bigger. If you have the long term view point, this change is welcome for everyone. After all India’s strength is our traditional savings habits. There are reports says that Indian savings are keep reducing which would put them in the trouble when they are retired. These changes are to ensure that they have enough savings for the retirement.

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