Whenever we talk about Employee Provident Fund (EPF), the very first thing that comes to our mind is Deduction from our Monthly Salary. As under EPF scheme, employer deducts a part of the salary of employees every month to invest the same in a recognized saving scheme on there behalf. Although this deduction and investment builds a good retirement corpus for us but still this deduction bothers us as it reduces our take home salary every month.
A new notification issued by EPFO can further reduce our take home salary. In simple words, EPFO is considering to increase the EPF deduction on the part of both employer & employee to make people save more for there retirement. To increase EPF deduction, EPFO is not increasing the deduction percentage however the new deduction will be based on other allowances apart from Basic and Dearness allowance.
If you see your current salary slip, you will find that currently the EPF deduction made by your employer is based upon your Basic Salary & Dearness Allowance i.e 12% of (Basic + Dearness). Lets say your monthly salary structure is something like this:-
|House Rent Allowance||Rs 9000|
|Special Skill Allowance||Rs 5000|
|Dearness Allowance||Rs 3000|
|Conveyance Allowance||Rs 6000|
So the deduction made from your monthly salary is somewhat like this so far :-
EPF Deduction = 12% of (Basic + DA)
EPF Deduction = 12% of (20,000 + 3000) = Rs 2760
Monthly Take home Salary = Rs 43000 – Rs 2760 = Rs 40,240
ALSO READ : How To Download EPF Passbook Online?
Going forward may change the EPF deduction components. So the deduction from your monthly salary will be somewhat like this:-
EPF Deduction = 12% of (Basic + DA + Other Allowances)
EPF Deduction = 12% of (20,000 + 3000 + 9000 + 5000 + 6000 ) = Rs 5160
Monthly Take home Salary = Rs 43000 – Rs 5160 = Rs 37,840
What Will Happen After Change In EPF Deduction Will Come Into Effect?
- Your monthly take home salary will reduce.
- Your loan eligibility will reduce corresponding to the reduction in your monthly salary. As Bank & financial institutions offers loan depending to your monthly income so change in your monthly salary will effect your loan eligibility.
- Tax benefit – Investment under EPF scheme offers income tax deduction under section 80C, so higher the investment higher the income tax benefit.
- Increase employer contribution : As your employer contributes equal amount to your EPF account on your behalf. So increase in your share will make your employer contribute the equal amount.
- More Savings : Increase in EPF contribution will make you save more and this will help you build better retirement corpus.