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Q. Employees’ Provident Fund: Outline recent developments and also comment on it.
Apr 21, 2016 Related to : GS Paper-3

Ans :

Introduction-

The Employees' Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried employees working in a formal sector. This fund is managed by Employees Provident Fund Organisation of India (EPFO) which is a statutory body.

Recent Developments-

  • In February 2016, EPFO issued notification to change the withdrawal rules. The changes are as following.

→ Full EPF balance cannot be withdrawn before attaining the new Retirement Age of 58 years (earlier it was 55).

→ Increased the age limit from 54 to 57 to withdraw 90% of PF balance.

→ Employee can not withdraw employer contribution to EPF before 58 years.

→ EPF membership does not end with leaving the job.

  • Budget 2016 has proposed to make 60% of employee contribution to EPF corpus taxable for contributions after 1st April 2016.

  • But protests from various quarters forced the government to withdraw both the above changes. In both the cases earlier norms will continue.

Why Withdrawal-

  • February notification about EPF withdrawal and Budget proposal to tax EPF savings discourages people to take formal jobs, instead they may prefer informal jobs without any mandatory deduction of EPF.

  • It will defeat the objective of enhancing formal sector jobs, which accounts only 10% of total work force.

  • People often withdraw EPF balances when they change jobs, because many times transfers are not handled smoothly at the PF office.

  • Present scenario labour market has undergone paradigm shift which is now characterised by greater job mobility, increasing contractualisation and weaker security of tenure. In such a scenario employee should have choice of withdrawal to secure themselves.

Conclusion-

Recent rollback of both EPF withdrawal norms and tax on EPF withdrawal is welcome move. Instead of this, government should focus more on bringing informal sector employees to formal sector. Providing genuine social security for the informal sector employees, which accounts 90% of total work force is a far better idea than micromanaging the present 10% formal sector workforce.


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