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By Tina Edwin The Employees’ Provident Fund Organisation ( EPFO ) has seen a dip in new enrolments and thereby, total contributions, in recent months. Tina Edwin looks at the reasons behind this and whether changes in tax norms and better response to the National Pension System have played a role in the drop The number of new EPF subscribers fell by 4.4% in 2023-24 to 10.9 million from 11.5 million in 2022-23, as new additions to the social security scheme normalised after the sharp rise in the aftermath of Covid19 pandemic. It rose 27% in 2021-22 and 6% in 2022-23 due to the backlog of registration due to the Covid-19 shutdowns and a recovery in employment creation in the post-pandemic period. EPFO enrolled 947,068 new members in September 2024, against 978,275 in August 2024 and 1.11 million in June, the highest in FY25 so far. Provisional payroll data for September 2024 shows net addition (number of new subscribers less number of subscribers that exited plus old subscribers returning) of 1.88 million, 9.33% up from September 2023. The total number of new members enrolled was 6.15 million during April-September 2024. New subscribers, and thereby contributions to EPFO schemes, should continue to grow due to India ’s demographic profile and gradual formalisation of the labour force. Policy interventions by the government are also likely to help increase both enrolment and contributions. The growth in the total corpus of various funds managed by EPFO has also slowed down a bit – it grew 15.9% to Rs 24.75 lakh crore in 2023-24, from Rs 21.36 lakh crore in the preceding year. In recent years, except 2019-20, the corpus grew more than 16% annually. The changes in tax laws may have affected contributions to the EPF scheme last year. A sizeable portion of the EPF corpus is invested in debt instruments, with about 9.5% in equities through exchange-traded funds (ETFs). The government is looking to hike the retirement fund body’s exposure to the segment significantly further so as to raise the returns for EPF subscribers from 8.25% in FY24 to as high as 10%. The corpus has risen faster in recent years, nearly doubling from about Rs 13.33 lakh crore it managed in March 2018. The total investments made by the retirement body fund as of FY24-end was Rs 15.29 lakh crore. Of this, Rs 1.45 lakh crore, was invested in ETFs. The central government has taken several measures to encourage establishments to create jobs and enrol their employees in the social security scheme. Under the Pradhan Mantri Rojgar Protsahan Yojana launched in August 2016, the government paid the employers’ share of contribution to EPF and employee pension scheme (EPS) for a period of three years. This scheme was discontinued in March 2022. Under the Prime Minister Garib Kalyan Yojna launched during the Covid-19 period, it paid the employees’ and employers’ share of EPF and EPS. Likewise, the Aatmanirbhar Bharat Rozgar Yojana launched in October 2020, aimed at re-hiring those who had lost their jobs in the pandemic, had the government paying the employees’ and employers’ share for certain organisations for two years. The Budget 2024 announced three employment-linked incentive schemes to incentivise establishments to create more jobs, especially for first-timers and enrol them in the EPFO. The government will subsidise the EPF contributions under these schemes. Through an amendment in Budget 2021, the government sought to discourage subscribers from investing more than Rs 2.5 lakh per annum into their EPF accounts. Interest earned on contributions beyond Rs 2.5 lakh was made taxable. The government felt that many high-income employees were investing excessive amounts in the PF scheme, burdening the trustees and government to bear the high cost of interest. Some of these subscribers may limit their contributions to Rs 2.5 lakh with this amendment. Moreover, the government now wants taxpayers to migrate to the new tax regime which offers lower tax rates and fewer exemptions. Deductions allowed under Section 80C of the Income Tax Act are not available in the new tax regime. People will continue to invest in the EPF because of the statutory requirement and the attraction of risk-free returns. But, they may prefer to invest additional amounts in other instruments that offer better returns. The New Pension Scheme which has given better returns is also seen as an attractive option. Regular monthly contributions to the EPF and EPS help employees build a corpus for their retirement years and get a small pension. Though the minimum contribution is currently fixed at 12% of the basic salary, employees can contribute much more. The guaranteed interest — 8.25% in FY24 – allows subscribers to grow their savings relatively risk-free. In the 1990s, the EPF contributions fetched 12% annual interest. For those still filing their taxes under the old regime, EPF is attractive as contributions up to Rs 1.5 lakh are allowed as a deduction under Section 80C of the Income Tax Act, 1961. Withdrawals are exempt from tax if subscribers had more than five years of continuous service. None
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