The Ministry of Labour & Employment had announced in March 2020 that individuals could claim non-refundable advances from their Provident Fund (PF) account not exceeding the basic wages and dearness allowance for three months or up to 75% of the amount standing to their credit in the Fund, whichever is lesser, for Covid related needs. Prior to this announcement, PF subscribers could withdraw from their PF accounts only under various terms and conditions, such as retirement, including illness, marriage, education, purchase of a house, etc. In view of the second wave that has brought the deadly ‘black fungus’ with it, it is now to allow members to avail a second advance, the provision and process for which is the same as the first one. Members who had previously sought an advance can apply again.
Despite the Ministry of Labour’s welcome move in providing relief to employees at an unprecedented crisis like this, there is a taxation aspect of these withdrawals that leaves the young workforce in the private sector vulnerable. According to Income Tax Rules,
- only if an employee participating in Employees’ Provident Fund (EPF) has rendered continuous service for more than five years;
- or if before five years, the employee’s service has been discontinued on grounds of ill-health, or by contraction or discontinuance of employer’s business or other causes beyond the control of the employee, can the EPF balance be exempt from taxation.
This strains a chunk of the working population that finds itself unable to cope with the pandemic, having to resort to withdrawing their PF corpus before 5 years of being employed. While the FAQ’s released by the Employees’ Provident Fund Organisation (EPFO) state that these withdrawals will not be taxable, an amendment in the Income Tax Rules to this effect is the need of the hour.
Labour Market Post Surge in COVID Cases
On November 12,2020, Finance Minister Nirmala Sitharaman announced the launching of Atmanirbhar Bharat Rozgar Yojana (ABRY), to boost employment- setting the target of creation and restoration of jobs at 50-60 lakh jobs by June 2021. To this effect, the Central Government announced that it would pay both the employees’ and the employer’s share of contribution payable under the Employees’ Provident Fund and Miscellaneous Provisions (EPF and MP) Act, 1952 (for establishments with up to 1000 contributing employees) or only employees’ share (for establishments with more than 1000 contributing employees), directly to the Universal Account Number (UAN) of eligible employee maintained by the EPFO. This benefit would be available for a period of two years from the date of registration of the new employee by the employer of the eligible establishment.
The ABRY is available for the period from October 2020 to June 2021 for the registration of new employees. A new employee, according to ABRY is any employee drawing wages less than Rs. 15,000 per month
- Who did not have a UAN prior to 01st October 2020 and joins employment in any establishment on or after 01.10.2020 up to 30.06.2021; or
- Any EPF member, already allotted with UAN, who exited from employment during 01.03.2020 to 30.09.2020 from any establishment and who joins in any EPFO registered establishment on or after 01.10.2020 and up to 30.06.2021.
According to the Ministry of Labour, EPFO closed 71.01 lakh EPF accounts during April-December in 2020 post lockdown of March 2020. Recent data by the Centre for Monitoring Indian Economy (CMIE) further reveals that the unemployment rate stands at 11.92% as on 31st May 2021, higher than record-level highs in June 2020 during which time too, the country was under a nation-wide lockdown. While many believe that India has crossed the second peak of the pandemic, it is unlikely that normalcy is going to be restored anytime soon in the labour market. Only 16.5 lakh people have benefited from ABRY as against the enormous closure of 71.01 lakh EPF accounts back in April-December of 2020.
As we are one month away from the expiration of the validity period for registration of beneficiaries under ABRY, it is imperative for the Central Government to realign its expectations and extend ABRY’s validity period to try and achieve its goal.
– Sukanya Hosamani
Associate & Advocate