By Aniruddh Shastree
The Employees’ Provident Fund (EPF in short) was constituted in the year 1952 through an Act for the purpose of instituting provident fund, pension and deposit linked insurance fund for employees in factories and other establishments. In construing the provisions of the Act, we have to bear in mind that it is a beneficent piece of Social Welfare legislation aimed at promoting and securing the well being of the employees…. There are a good number of reasons why EPF should be encouraged looking at present and future needs of the society instead of weaning employees away from it or investing or devising new systems for socio- economic security of citizens. The recent proposals and radical changes made to the provisions of the Act made citizens especially members of the EPF rethink whether to continue with or open an account or not, which although is compulsory by law for certain employees. With rising contractualization of labour of not only unskilled but also professional and highly skilled jobs , rising automation of jobs there is a rising in-formalization of jobs. Contract workers constituted about one-fourth of all workers in formal manufacturing in India in 2008. Atotal of 384 million persons are employed at various levels and out of the total employed 51% are self- employed, while 33.5% are engaged as casual labour The Employees’ Provident fund (EPF’ in short) and 15.6% are employed as regular wage or salaried employees as per 66th Round of NSSO, 2009-10. Economic globalization is undermining economic development by driving many workers into low-paid, insecure jobs. Barely 34 million (or less than 11%) of the estimated working population in India is eligible to participate in formal provisions meant to provide old age income security. Therefore, almost 90% of India’s workforce is not eligible to participate in any scheme that enables them to save for economic security during their old age. Hence there is an urgent need to involve unorganized sector. In India, due to the absence of a comprehensive social security system funded by the Government, it is the collective responsibility of the nation that citizens have access to the information and infrastructure to prepare themselves for their old age, and hence the Employees’ Pension Scheme can come to the rescue. The current retirement funds corpus is expected to be in the range of INR 12,000-15,000 billion. Almost one third of the corpus is in the Employees Provident Fund, which is the principle source of retirement planning for workforce in the organized sector. By 2030, 12% of India’s population will be in the age bracket of 60+ years, which translates into ~ 180 million people. Because of the sheer numbers, this
This will be a very large population – much larger than the population of many developed countries. More than 60% of India’s population in the age group of 15-59 years. This is a demographic dividend of which the country is proud. However, at the same time, the percentage of its population that is above 60 years is increasing every year due to improved longevity, driven by an enhanced focus on health care, rising income levels and a better standard of living in the country and further the youth of today will be elders of tomorrow, let’s not forget that. The need is to bring citizens into organized sector of employment with a habit of saving money for future. If the existing system of Employees’ Pension Scheme can be strengthened it will be beneficial for the Nation’s future.
What got rolled back? 1) taxing 60% of the corpus of EPF of employee on its withdrawal. 60 per cent of EPF withdrawal will be taxed as income if it is not invested in an annuity offered by an insurance company. However, the subsequent income stream from the annuity will be taxed. 2) Contributions from financial year 2016 onwards, only the employee contribution and interest can be withdrawn entirely. The employer contribution will be locked-in till you turn 58. 3) (Raising age of retirement from 55 to 58. (ii) Tightened rules governing withdrawals,(iii) Quarterly revision of interest (iv) No interest on dormant/ intoperative accounts. Is Government taking steps towards reducing its liability? What perceive is that Government wants to give a signal that Just as the government cannot bear the cost of providing for an ageing population, you will yourself find it hard to fend for your needs with higher cost of living and lower returns. Government should understand that the contribution of employees is helping Government’s fiscal deficit and need to take loans from agencies outside India thus EPF is mutually beneficial legislation. The present roll back of all changes that Central Government proposed and tried to implement may Impact or may not be an indication of image makeover in the wake of recent elections that started from 4 th April 2016 in the states of West Bengal, Assam, Kerala, Tamil Nadu, Pondicherry and vote counting on May 19, 2016 and who will not favour safer and fixed stable income. No one will be impressed by a party that takes anti- populist measures. Isitpossiblethatin futureitmightgetre-implemented? Looking at such a scenario, the point to contemplate and decide is whether employees should withdraw the money as much as possible whenever possible or trust the Government on the issue that the dilemmas on issues of EPF is buried deep for the present term of this Government at least. Given that 90 per cent of India’s workforce has no form of retirement savings, any move to shrink the existing EPF cover makes no sense. If an entire generation of Indians faces a pension shortfall 20 or 30 years hence, the problem would certainly come back to haunt policymakers, The rollback of the controversial EPF tax proposal is a step in the right direction and will bring welcome relief to the salaried class. Freedom to use retirement savings is of paramount importance to salaried group, which is created to take care of their sunset years. People often tend to dream of a face lift change in lifestyle by purchase of either a car, television, a new house, marriages of children, a source of income for family in case of job loss of any of the family members or put in a monthly income plan in banks and many more things with the lump sum of provident fund amount that employees get after retirement or he/she wishes to buy a dealership or start up a consultancy, on employee’s name or his/her sons’ or daughter’s name, this fund can be useful for starting a second professional life of employee or employee’s family. Hence compelling an employee to shift to National Pension Scheme account by showing the stick of tax deduction as tax can form a significant part of the fund amount is not a sign of good governance.