As you are aware the Government has introduced an economic package to help individuals and businesses tide over the impact of COVID. One of the measures announced is the reduction of PF rate from 12% to 10%.
This email will help you to understand this change and implement the same in your Paybooks account.
Highlights of the PF rate change
- EPF contribution by Employees and Employers reduced to 10% from the existing 12%. ( Gazette Notification attached)
- The revised rates as per the attached Notification are as follows
- Employees’ PF contribution (A/c 1) is 10%.
- Employer’s PF contribution (A/c 1) is 1.67%.
- Employer’s EPS contribution (A/c 10) is 8.33%.
- There is no change in the Administrative charges or EDLI contributions.
- The reduction in EPF contribution will be applicable for the months of May-20, Jun-20 and Jul-20.
- This reduction is voluntary. Employees can still contribute at 12% and Employers can contribute at 10% for the same employees.
- Since this is voluntary and employers may or may not be following the CTC concept, you have to make appropriate changes in the Settings to give effect to the changes. A Help guide is attached to this email which explains how you can make the changes.
- As a result of this reduction,
- The Employees shall have a higher take home pay as their contribution will be reduced
- If the Employer is not following a CTC concept with respect to treatment of PF Contribution, the Employers shall have a saving of 2% due to reduced Employer Contribution
- If the Employer is following the CTC concept, then there is no net saving as the reduced PF contribution will have to be paid out to the employees as Special Allowance/Other earnings
- This lower contribution to EPF impacts the Employees in two ways.
- The EPF contribution is eligible for a tax break under Section 80C. If the EPF contribution is reduced, the corresponding tax break also reduces in the old regime
- The additional earnings to employees will also be added to the total taxable income.
- This cut would also mean lowering of the EPF corpus or retirement savings.
- After you run payroll for July and file the PF returns, you should reverse the changes made now. We will be sending one more communication and a Help guide for this in Aug 2020
To Revise PF structure please refer the below attached user manual.