Union Finance Minister Nirmala Sitharaman on July 23 announced three new incentive schemes linked to the Employee Provident Fund Organisation (EPFO) as part of the Union Budget for 2024-25. The measures are meant to support first-time employees and provide significant assistance to both employers and employees across various sectors.
The first scheme aims to support EPFO enrollments for new employees in all formal sectors. It offers a month’s wage payout, distributed in three instalments of up to Rs15,000 per month. This benefit is available to those earning up to Rs 1 lakh per month, through a Direct Benefit Transfer system. The subsidy will be refunded by the employer if the employment ends within 12 months of recruitment. Sitharaman stated that this scheme is expected to benefit approximately 210 lakh young workers entering the formal job market.
The second scheme focuses on creating jobs in the manufacturing sector, linked to the employment of first-time employees. An incentive will be given to companies hiring additional people, at a specified scale directly both to the employee and the employer with respect to their EPFO contribution in the first four years of employment.
All employers which are corporate entities and those non-corporate entities with a three-year track record of EPFO contribution will be eligible. Employees with a wage/ salary of up to Rs 1 lakh per month will be eligible, subject to contribution to EPFO. Subsidy to be refunded by the employer if the employment to the first timer ends within 12 months of recruitment. The scheme is applicable for two years.
The third scheme will cover additional employment in all sectors. All additional employment within a salary of Rs 1 lakh per month will be counted. The government will reimburse employers up to Rs 3,000 per month for two years towards their EPFO contribution for each additional employee. The scheme is expected to incentivise additional employment of 50 lakh persons. For the employee, deductions under Section 80c of the Income Tax Act are not available in the new regime, but they can claim a deduction upto Rs 1.5 lakh in the old regime.
NPS deduction
Additionally, the Union Budget 2024 includes an increase in the deduction on employers' contributions to the National Pension System (NPS), raising it from 10% to 14% of the employee's basic salary. This change will apply to both public and private sector companies under the new tax regime. The deduction under Section 80CCD(2) will be available under both the old and new tax regimes, but the increased rate of 14% will be applicable only under the new regime.
Finance Minister Sitharaman highlighted this adjustment, stating, "To improve social security benefits, the deduction of expenditure by employers towards NPS is proposed to be increased from 10 to 14% of the employee’s salary."