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Reduction in ESI contribution rate

There is a reduction in the contribution under the ESI Act. The government has reduced the contribution to 4% from 6.5%. This was done to increase the workers' expected take-home salary and reduce the financial burden of the employers. This move is said to benefit 36 million workers and 1.28 million employers.

There is a reduction of 1.5% from the contribution of the employers. It has been reduced to 3.25% from 4.75%. The employees’ contribution is reduced to 0.75% from 1.75% which is a 1% reduction.

The reduction in the contribution is said to give substantial relief to workers and bring about more workforce into a formal sector.

The reduction in the employer contribution is said to benefit the employer by reducing the financial liabilities of the organization. This in turn will have a positive effect on the business and increases the ease of doing business.

The ESI Act, 1948 covers all employees drawing a monthly salary of Rs 21000. This limit was raised by the Government during December 2016 from Rs 15000 to Rs 21000. The enrolment under the ESI scheme has increased after the Government made a move to increase the wage ceiling from Rs 15000 to Rs 21000.

The ESI Act has many added benefits that are given to the insured person. He/she is entitled to benefits like medical, cash, maternity, disablement, and dependant benefits.

According to the Labour ministry data, 36 million workers were insured under the scheme in 2018 and 2019, contributing Rs 22, 279 crores.

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