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It was necessary to provide more take home salary to employees and also to give relief to employers in the payment of provident fund dues, said Finance Minister Nirmala Sitharaman.
"Therefore, statutory PF contribution of both employer and employee will be reduced to 10 per cent each from the existing 12 per cent for all establishments covered by EPFO for the next three months," said the minister.
State-run firms will however continue to pay 12 per cent as employer contribution.
This, according to the government, will provide relief to about 6.5 lakh establishments covered under EPFO and about 4.3 crore such employees.
The government also said it would pay the EPF contribution for employees of businesses to help them recover from the virus crisis.
To ease financial stress as businesses get back to work, the government will continue EPF support for business and workers for three more months, providing a liquidity relief of Rs 2,500 crore. This will benefit 72.22 lakh employees.
"The EPF of two quarters will be paid by the government for companies with up to 100 employees and where 90 per cent of the staff is paid up to Rs 15,000 a month," said Nirmala Sitharaman.
This would help businesses facing financial stress as they get back to work, the government said. It would also boost the disposable income of employees.
The government had made payments of 12 per cent of employer and 12 per cent of employee contributions into EPF accounts in March, April and May. This will be extended by another three months to the salaries of June, July and August.
The purpose of an provident fund is to help employees save a percentage of their month salary. Under an employee provident fund scheme, an employee pays a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee receives a lump sum amount on retirement.