Proposed PF Rule: Important Things to Know
As per the EPF rules, 'basic wages' includes all emoluments paid to the employee, which excludes house rent allowance, dearness allowance, cash value of any food concession, overtime allowance, bonus and commission. Barring a few allowances like special allowance and transport allowance would make up the EPF calculation.
Newly Proposed Rules:
One obvious impact of this would be that the take-home pay would be dented. But what it also means is that retirement savings will become higher. We need to view the latter point in the perspective of increasing life expectancy. The impact of the new rule is discussed below:
Impact of the new rules on the salaried persons:
Impact on retirement savings:
Impact on current commitments:
Impact on the take home pay:
If this happens then the take home pay may dip further deepening the employees’ woes. A change in the approach towards the financial planning, therefore, becomes the need of the hour.
Impact on the current saving schemes:
Nevertheless, it is too early to predict the change and its long term effects. Firstly, there are no clear rules on what will now constitute the basic salary. The accounting house PricewaterhouseCoopers notes, "There are conflicting judgements by high courts on the interpretation of the term 'basic wages' provided in the EPF Act
"The decision of the Supreme Court will provide a direction in the matter. Till then, this circular is a wake-up call for employers to review their position in relation to their compensation structure," noted PricewaterhouseCoopers.