In absence of social security system in India, people have to rely on their own savings during their old age. However, with persistently high retail inflation and propensity to raise standard of living; people find it difficult to save regularly and systematically. In case you are a salaried person, you may have a more predictable earning and spending pattern. To inculcate the habit of compulsory saving, employees are always encouraged to participate in provident fund schemes which are aimed at helping you build your retirement kitty.

Every employee working in a factory or other establishments, to which the scheme of Employee Provident Fund (EPF) applies, is entitled to become a member. Employees contribute the equal sum paid by the employer. Currently employers, at maximum, can contribute 12% of the "basic salary" increased by Dearness Allowance (DA) (including the cash value of any food concession)which is further inflated by the amount of retaining allowance, if any.

At present, to avoid higher out go, employers structure salaries in such a way that, when combined, "basic and DA" component forms an insignificant portion of the total pay-package. Any increment is often paid as "allowances". Any salary rise increases the tax liability (and often to a great extent) even after exhausting all permissible limits of tax exemptions and deductions. On the other hand, employers get all taxation benefits as "salary" being a deductible expense. Contributions by both, employee and the employer, in most cases remain almost unchanged even after hikes in salary.

To plug this loophole, Employees Provident Fund Organisation (EPFO) had issued a circular last year to "redefine" the term "basic salary" and include therein all payments other than those which are classified as "specified exclusions". Amidst vehement resistance demonstrated by various groups representing both sides; Labour Ministry had put the matter on hold and had set up a committee to check the merits of opposition. EPFO is soon expected to go ahead with the change as the committee has not found any merit in the argument against the proposed move.

Implications of the move

The proposed move is not only going to affect the wage bill of companies but would also have a bearing on employees' "take home" salary.

Effects on Employers
 

• Salary cost may go up significantly.
• May face opposition from if they try to exclude employees earning in excess of the amount over which (currently Rs 6500) "opt out" option is available.
   

Effects on Employees
 

• Take home salary will reduce
• Compulsory contributions would go up
• Amount that is available in the hands of employees for discretionary spending /investments would go down
• Structure and functioning of EPF scheme would make it difficult for employees to break their investments prematurely which is otherwise possible when they invest money at their discretion.
• Salary Structures may undergo some changes
   

PersonalFN is of the view that you shouldn't get discouraged with possible fall in your "take home" salary. The money that is being channelised to EPF as your contribution is managed by professional money managers and earns tax efficient returns. EPF has always been a great tool to plan for your retirement. However, PersonalFN also believes that you should create a nest egg for your golden years by investing wisely and not entirely depend on your EPF money for retirement.

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Comments
deepak@doraiswami.com Jun 08, 2013 All said, I think this is a good move by the EPFO as it will allow employee's to forcefully save more for their retirement. I just hope that employers do not find any further loopholes in this change as it has taken the EPFO close to 2 decades to make this change. One question I have is "Do we know when this change would come in to effect, an approximate date cause I know it is hard to predict the exact date given various approvals etc."
contact@rupee2wealth.com Jun 11, 2013 For employer perspective, there will not be any loss. Employer contribution of PF is a part of employee CTC. So what they do they deduct the same amount from other structure of the salary, resulting take home salary reduces. And i am not agree that PF is a good instrument for retirement. Instead one should opt for less contribution towards PF & the saved money should deposit in a proper MF through SIP which can create much more return for retirement.
bonkwald@nabu-hamburg.de Jun 22, 2013 Because there was so many references to Kolkata, I thguoht that you were still in Kolkata but that does not matter you can send by speed post / courier but do keep the acknowledgement and confirmation of delivery of the letter with you.To the main issue B & C I guess is not a problem for you.Now for A if you were not transfered to any new unit / location of the company and the company shifted the PF deposit location of all employees then that means there was correction of jurisdiction most probably at the instance of EPFO itself.Now there are two things. You have WB/CAL 3A statement for one year whereas you worked in A for two + years. So, definitely your accumulation is more than what is mentioned in that 3A statement of one year.Secondly, you have mentioned in your previous comment that as per Company document your A/c is WB/ PRB . So which is this document some sort of relieving letter / last pay certificate or what?In my opinion, you have to send the Form 13 to the Park Street EPFO office and mention the full duration from 2004 to Feb 2007. Do not mention anything regarding WB/CAL all that would unnecessarily confuse the EPF people. And my experience of Kolkata is that when there is confusion instead of trying to solve it, people prefer not to do anything. So, do not add any document or any note relating to WB/CAL. On this issue of A Proceed step by step first see what amount is transferred by Park Street.

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