Tue Sep 17 05:32:43 UTC 2024: ## Mandatory Social Security Schemes Burden Low-Income Workers in India, Experts Claim
**New Delhi, India** – While India’s tax regime offers relief to low-income earners with an annual income below ₹2.5 lakh under the old regime and ₹3 lakh under the new regime, experts argue that mandatory contributions to social security schemes, like ESIC and EPFO, act as a hidden tax, disproportionately impacting low-wage workers.
These mandatory contributions, which include contributions to Employees’ State Insurance Corporation (ESIC) and Employees’ Provident Fund Organisation (EPFO), can amount to a significant portion of an employee’s salary, effectively eroding their take-home pay.
Harsh Roongta, founder of Fee Only Investment Advisers, argues that these contributions, especially to ESIC, are essentially a tax due to their mandatory nature and difficulty in accessing benefits. He cites the example of an employee earning ₹1.8 lakh annually, who faces deductions of ₹54,700, amounting to 35% of their take-home pay, for contributions to these schemes.
This issue has been highlighted previously by former Finance Minister Arun Jaitley, who described EPF and ESI as having “hostages rather than clients,” emphasizing the low claim ratios and dormant EPF accounts.
Roongta further criticizes ESIC’s poor claims performance and inefficient cost structure, highlighting that a much better health insurance plan can be purchased for the same or lower premium amount, leading to better claim settlement performance.
Anurag Jain, co-founder of ByTheBook Consulting LLP, points to the cumbersome administrative processes of EPFO and ESIC, which lead to delays in claim settlements and approvals, deterring employees from utilizing the schemes and creating additional stress for employers.
Experts call for a more transparent and efficient system for these social security schemes, advocating for optional contributions, improved claim settlement processes, and a more transparent and accountable operation of ESIC. This would allow employees to make informed choices about their financial security and ensure that social security schemes truly benefit the intended beneficiaries.
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