NEW DELHI: In a setback to over five crore provident fund subscribers, the labour ministry has turned down a proposal to deduct 12 per cent contribution on the basic salary as well as allowances even as it holds back several notifications.

Sources familiar with the development told TOI that the ministry went by the law ministry’s opinion that the Employees Provident Fund Organisation (EPFO) could not ask for deduction on the salaries and allowances under the existing legal framework.

A volley of protests by the employers, however, prompted the government to seek a review of the circular, who suggested that employees would lose out on take home salary even as they would have had to shell out more to meet the new obligation.

An internal committee set up by the labour ministry had backed the circular as it was widely seen as an employee-friendly gesture. But industry chambers such as CII and Ficci lobbied hard against the implementation of the circular.