New Delhi: Employees as well as employers may have to shell out more towards Employees Provident Fund (EPF), with the government proposing to include all allowances in the wages for deducting PF contribution.
According to the new definition of the wages, as proposed in a draft bill, for the purpose of computing provident fund contributions by employers as well as employees, the wages would include basic pay and allowances.
At present, the PF liability is computed on the basic wages of the workers which include basic pay and dearness allowance only.
The employees contribute 12 per cent of their basic wages towards EPF contribution, with employers pitching in equally. Out of employers' contribution 3.67 per cent goes towards EPF, 8.33 per cent towards Employees' Pension Scheme and 0.5 per cent towards the Employees' Deposit Linked Insurance Scheme.
The draft bill to amend the Employees' Provident Funds Miscellaneous Provisions Act 1952 provides that "Wages", means all emoluments or remunerations including all allowances payable to an employee in cash.
"The employers split wages of workers into numerous allowances to reduce their PF liability. The proposed definition of wages in the bill will check such practices," General Secretary Bharatiya Mazdoor Sangh and an EPFO trustee Virjesh Upadhyay said.
The Labour Ministry is in the process of finalising the bill as it has concluded a tripartite consultations on the bill and received views of trade unions, employers' representatives and government bodies, he added.
A senior official said that earlier the Employees' Provident Fund Organisation had issued a notification for clubbing of wages in November 2012.
But the notification was kept in abeyance after uproar by the industry. A panel was also constituted on issue which had favoured clubbing of wages to provide adequate social security cover to workers, the official added.
He further informed that the Labour Ministry has decided to constitute a committee to work on workers' bank to provide easy finance to its members and manage its investments.
The decision to constitute a committee was revealed by the Labour Minister Bandaru Dattatreya during an EPFO trustees meeting held on March 11.
Income Tax Rules Tightened on PF Withdrawals
Finance Minister Arun Jaitley in his Budget proposals tightened the income tax law on withdrawal of provident fund. Under the proposed tax law, provident fund withdrawal before five years of continuous service will attract a TDS (tax deducted at source) of 10 per cent.
While calculating the period of continuous service of five years, the previous employment can also be included, provided the balance from the previous PF account is transferred to the new PF account. Under tax laws, provident fund withdrawal after continuous service for more than five years is not taxed in the employee's hands.
The new proposal of TDS deduction will not be applicable in cases where the provident fund withdrawal is less than Rs. 30,000. The new proposal will not apply to those persons who give a declaration that their income does not fall under the tax bracket, said Mayur Shah, executive tax director at EY.
In another provision, if PAN number is not quoted to provident fund authorities when seeking withdrawal, the entire amount will attract "maximum marginal rate" which is the income tax rate of highest slab of nearly 35 per cent.
Mr Shah says Budget proposals clear the ambiguity in tax laws on deduction of TDS by the Employee Provident Fund Organisation.
Unused priority sector lending funds to be diverted to MUDRA Bank-Indian Express
Unused priority sector lending funds of commercial banks will be used to set up the Rs 20,000 crore corpus of the proposed MUDRA Bank. The bank will use at least 65 per cent of its funds for lending to micro enterprises run by members of scheduled castes and tribes.
Typically, domestic commercial banks deposit their lending shortfall from priority sector to the Rural Infrastructure Development Fund of the NABARD while foreign banks are mandated to deposit an amount equal tot he shortfall in priority sector lending with the Small Enterprises Development Fund of the Small Industries Development Bank of India (SIDBI).
“The Rs 20,000 crore corpus will not come from the Budget but out of the priority sector shortfall. The Reserve Bank of India will give this money, which will be used for re-financing,” said Hasmukh Adhia, secretary, department of financial services.
However, the related Rs 3,000 crore credit guarantee fund for the Bank would be set up through Budgetary allocations.
Finance minister Arun Jaitley had in the Union Budget 2015-16 proposed setting up the Micro Units Development Refinance Agency (MUDRA) Bank. “In lending, priority will be given to SC/ST enterprises,” he had announced.
The Bank, which is expected to start operations this fiscal, would initially be set up as a subsidiary of SIDBI, but the finance ministry would later enact a separate law for it.
“We have to ultimately come out with a statute or Act of Parliament to create the MUDRA Bank, but in the meantime, we will create an agency called MUDRA as a subsidiary of SIDBI initially. It will start doing its business as early as possible,” Adhia said, adding that the statute would define the functions, responsibilities, procedure for refinancing as well as recovery.
The finance ministry plans to rope in non-banking financial companies, small banks and MFIs for lending at the local level while it will also use state cooperative banks and regional NBFCs as an intermediate.
“We only use commercial banks as financing source but they are not very familiar on how to lend to micro enterprises. The MUDRA Bank will use anybody in the last mile and intermediate agencies at the regional level,” Adhia explained.
The finance ministry also plans to bring in stringent penal provisions to deal with defaults. Just 75 per cent of the loan amount would be guaranteed through the credit guarantee fund while the remaining 25 per cent would have to be guaranteed by the MFI.
The Bank will also levy an initial penalty of 0.5 per cent of the default amount on the lender, and the amount could increase for repeat defaulters.
A survey of the National Sample Survey Organisation that revealed that 5.77 crore such micro enterprises, 65 per cent are owned by SC/ST and OBC members.
Payments bank to generate revenues from transaction: Dipak Gupta-Financial EXpress
The Reserve Bank of India (RBI) has proposed setting up of payments bank to further the ambitious financial inclusion plan of the government.
However, with limited means to raise revenues, the transactional aspect of the yet-to-be launched payments bank would be the most significant characteristic of the new system, says Kotak Mahindra Bank joint managing director Dipak Gupta. Excerpts:
What is the major attraction of the payments bank model?
The payments bank model provides an opportunity to explore a new product market. As a commercial bank, it is usually not the top priorities to cater to the segment that payments bank is targeting. But, it is a huge market. Normally, it would have taken 3-5 years to look at this segment. The problem, however, is reaching out to this segment. The payments bank would need a product suit that is convenient for the customer to like and adopt.
Which part of the offerings would you focus on — deposits, transactions or sale of financial products?
It is not going to be a savings-account-interest-rate attraction. This segment of customers is not worried about 4% or 6% interest rate. This segment wants to make a transaction. The opportunity for deposits will be limited initially as it is not a part of the mainstream money flow. It is small-ticket segment with huge money flow. It will be a low-margin business. Banks earn in three ways, deposits, lending and fee. The bank is not allowed to lend, and deposits will be difficult because of the cost over-run. It necessarily has to be the fee on transactions.
How do you intend to get the required volumes?
If you look telcos, the top three companies have a customer base of around 15-20 crore people each. If I can get at least 5% as the additional customers, say 75 lakh, that would be roughly 10 times more than my current asset lending customers today. That would not be a big deal in three years. Airtel has about 22 crore customers that go for a top up every third day. So, on an average, 7.5 crore customers conduct a cash transaction every day.
How will you fulfil KYC requirement?
In the beginning, KYC will not be a challenge as it depends on the size of deposits. There will be one segment which will be the low-end segment, typically the R10,000 segment and another segment will be less than R1-lakh segment. The moment Aadhar adoption happens, KYC can take place very fast. The government says 50% of people already has Aadhar card. Also, mobile companies do an elementary level of KYC.
What would be the set-up cost?
You don’t much to set up payments bank. All you need is technology. That would be approximately R10-crore of investment. The most important aspect will be distribution and convenience.
Government plans radical changes in EPF law-Times of India 13.03.2015
NEW DELHI: The government is looking at sweeping changes to the law governing Employees Provident Fund (EPF) and has suggested doing away with the mandatory 12% contribution by employees in certain cases, while retaining the outgo for employers.
At the same time, the labour ministry is expanding the scope of wages beyond the basic salary to include all allowances, including those paid for authorized leave, strikes and layoffs or other allowances that are paid at intervals not exceeding two months. The move proposed in the draft legislation, circulated internally, was proposed a couple of years ago as well but had to be dropped after industry chambers protested against it, citing higher salary burden on companies.
The Centre is now trying to reintroduce the proposal, which will result in higher transfer to the provident fund but will reduce the take home salary. This can be tackled by allowing employees in certain industry segments or companies — to be notified by the government — to make lower contribution.
The draft legislation also seeks to increase the coverage of EPF to companies that employ less than 20 employees, again a proposal that has been discussed in the past.
Further, there are also proposals to strengthen the appellate tribunal, tone up recovery in case of defaulting companies and increase the penalty that can be levied.
The draft bill has run up against a wall of protest from trade unions, which fear a decline in their influence. A source familiar with the proposals said the government has suggested that the structure of the EPF Organization's Central Board of Trustees be reworked with five representatives each of employers and employees and two external experts. It also wants to restrict the tenure of board members to two consecutive terms.
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