Foreigners working across India and domestic employees with a basic monthly pay of up to Rs 6,500 may see a dip in their take-home salaries if the law ministry agrees to a plan to club allowances with basic pay to calculate the Provident Fund dues. The labour ministry has sought the law ministry's opinion on a circular issued by the former central PF commissioner RC Mishra on his last day in office on November 30, 2012.
The labour ministry, which had asked the circular to be kept on hold a fortnight after it was issued, has approached the law ministry after a working group appointed by it approved the proposals with minor modifications. India Inc and the finance ministry have earlier expressed concerns about the proposed changes in the EPF Organisation's compliance and enforcement norms.
"For calculating expat employees' PF dues, we are already required to combine basic wages, dearness allowance, retaining allowances and the cash value of any food concession," said Deepak Das, who heads a PF trust at a large IT company. If all allowances are to be clubbed to calculate PF dues, this will significantly impact companies with expats in their workforce, he said.
The problem, Das said, is compounded by the fact that Indian laws do not allow foreign workers to withdraw their PF savings till they turn 58 years unless their home countries have a social security agreement with India. Apart from clubbing all allowances with basic pay, the circular proposed limiting the period for investigating employers' PF defaults to seven years and set onerous conditions for initiating inquiries against firms.
As per the law, 24% of an employee's basic pay up to a monthly ceiling of Rs 6,500 must be deposited into the Employees' Provident Fund (EPF). There are over eight crore EPF members, including lakhs of employees who voluntarily make PF contributions on incomes higher than the statutory ceiling. "Allowances of employees who voluntarily save in the EPF beyond the Rs 6,500 cap will not be considered for PF dues by our field offices," said a senior official in the PF department.
"The idea is to ensure that employees are not denied their rightful benefits, especially in industries such as business process outsourcing, private security and construction, which artificially split salaries below the Rs 6,500 level to evade PF contributions," added the official, who did not wish to be named.
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