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PF Contribution Rate 2020 | New EPF Rule

Due to the nationwide lockdown, a new PF contribution rate has been announced. Furthermore, this new PF contribution rate will apply for the months of May, June and July 2020. Thus, in this article, we discuss the new PF contribution rate for 2020, how it will be calculated and how it will impact the businesses.

What does the notification say?

Notification No. 1513(E) was announced on May 18 2020. This notification states that the Central Government will reduce the PF contribution rate to provide some relief to employers and employees. But this decision was taken owing to the complete lockdown in the country for the past two months. Owing to which it has led to a fall in the economy and a dull in the business sector. Moreover, an amendment will be done to Section 3, Sub-section (ii) of notification no 320(E), published in The Gazette of India on 9th April 1997.

pf contribution rate

What was notification 320(E)?

Notification No. 320(E) was announced on 9th April 1997. This stated that the amendments made to Section 6 of the EPF and Miscellaneous Provisions Act, 1952 will not apply to certain industries. These certain industries have been specified in Schedule 2 of this notification as well.

pf contribution rate

Following establishments will be exempt from paying 10% PF contribution rate:

  • any establishment will less than twenty employees.
  • sick establishments.
  • establishments facing financial losses
  • pertaining to jute industry, beedi industry, brick industry, coin industry or gaur gum industry.
pf contribution rate

What does Section 6 of EPF Act say?

This Section 6 of the EPF Act states that PF contribution rate will be 10% of the basic wages (i.e. DA and retaining allowance). Although the employee’s contribution rate will be same as the employer’s contribution rate. If an employee desires to contribute more than 10% of his wages towards PF then he can do so. But in such case, the employer will not have to subsequently pay over the 10% contribution rate. It is important to note the appearance of “ten per cent” twice in this first paragraph.

pf contribution rate

The next paragraph states that the mention of “ten per cent” to be changed to “twelve per cent”. But an exception occurs in the cases of the establishments mentioned in Notification No 320(E). Such establishments will have 12% as PF contribution rate.

pf contribution rate

The Notification No 1513(E) of 18th May 2020 has added a new Clause (V) to Notification 320(E). This new clause states that any establishment other than the ones under Central or State Government will have a PF contribution rate of 10% for May, June and July 2020. But this will not be applicable on the establishments which are eligible for the Pradhan Mantri Garib Kalyan Yojana (PMGKY) scheme.

pf contribution rate

PF contribution rate for May-July 2020

As seen below, until April 2020, the PF contribution rate was 12%. This comprised of 3.67% as the PF contribution, 8.33% as the Pension contribution, 0.50% as EDLI contribution and 0.50% as administrative charges. But between May to July 2020, this total contribution rate will become 10%. This will comprise of 1.67% PF contribution, 8.33% pension contribution, 0.50% EDLI contribution and 0.50% administrative charges.

Furthermore, there will be no change in inspection charges for EDLI exempted establishments.

pf contribution rate

Calculation Example

Employer’s salary = Rs 10,000.
Then, his contribution in April 2020 with 12% contribution rate would be as:

  • Employee’s PF contribution – Rs 1200
  • The Employer’s PF contribution – Rs 367 (1200-833)
  • Employer’s Pension contribution – Rs 833
  • The Employer’s EDLI contribution – Rs 50*
  • Employer’s admin charges – Rs 50*
  • Effective CTC for employee – Rs 11,300
  • Effective % – 25%

Now, employee’s contributions for May-July 2020 with 10% contribution rate will be as follows:

  • Employee’s PF contribution – Rs 1000
  • The Employer’s PF contribution – Rs 167 (1000-833)
  • Employer’s Pension contribution – Rs 833
  • The Employer’s EDLI contribution – Rs 50*
  • Employer’s admin charges – Rs 50*
  • Effective CTC for employee – Rs 11,100
  • Effective % – 21%

*The EDLI and admin charges are notional only as they are calculated on the actual challan value.

Thus, we can see that the overall take-home salary of the employee increases but the effective CTC decreases.

pf contribution rate

Which establishments are applicable?

This new contribution rate will be applicable on all establishments except:

  • Central and State Public sector enterprises 
  • Establishments owned or controlled by the Central Government or State Government.
  • Establishments eligible for PMGKY benefits

Which months are this applicable for?

  • May ’20 paid in June ’20.
  • June ’20 paid in July ’20.
  • July ’20 paid in Aug ’20.

Common FAQs

  • Are exempted establishments eligible for the reduced rate of contribution? Yes, they are.
  • What will happen in the case of employees with a fixed CTC? The difference in employer share (2%) needs to be paid to the employee.
  • Can employer/employee pay at a higher contribution rate if they desire? Yes. 10% is the minimum contribution rate.
  • How to avail contribution rate reduction? Prepare ECR as per 10% and select the contribution rate as 10% on the PF portal while filing the challan.
  • Will it impact pension fund? No, since Pension contribution remains at 8.33%.
  • What if ECR is not submitted on time? No Problem. You will still get the reduction benefit whenever you submit the challan.
  • Is establishment applicable even if they are availing PMRPY benefit? Yes
  • Is it applicable to newly registered establishments? Yes
  • What if PF contribution rate is already 10%? Will they get further rate reduction? No, it remains 10%.

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Heena Siddique
Heena Siddique
Bibliophile. Turophile. Foodie. Tea enthusiast. Shopaholic. Sitcom addict. Movie buff.

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