Central Government Likely to Raise EPF Wage Ceiling to Rs 21,000

The Central Government is reportedly considering increasing the wage ceiling limit under the Employees’ Provident Fund (EPF) scheme from Rs.15,000 to Rs.21,000, as per the reports. This is the first revision in a decade and aims to widen the coverage of the Employees’ Provident Fund Organisation (EPFO) and strengthen social security for workers.

Changes to the EPF & EPS Contributions

• Higher Wage Ceiling for EPS Eligibility
  Currently, employees earning a basic salary above Rs.15,000 per month are not eligible for the Employees’ Pension Scheme (EPS). With the proposed ceiling increase to Rs.21,000, more employees will qualify for EPS. For instance, those earning Rs.21,000 can now enroll in the EPS, securing a pension upon retirement.
• Impact on Contributions
  Under the existing setup, employers contribute 12% of an employee’s basic salary to the EPF account, of which 8.33% (capped at Rs.1,250) goes to EPS. The remaining 3.67% and the employee’s 12% contribution are deposited in the EPF account.
  With the new wage ceiling, the EPS contribution will rise to Rs.1,749 (8.33% of Rs.21,000), reducing the balance deposited in the EPF. This will lead to higher pension savings but a slightly lower EPF corpus.

Benefits & Drawbacks

• Higher Pension at Retirement: The monthly pension amount is calculated using the formula:
  (Years of service × average salary for 60 months) ÷ 70.
  If the ceiling rises, the average monthly salary for EPS calculations increases from Rs.15,000 to Rs.21,000, increasing pension payouts. For instance, an employee with 32 years of service would see their monthly pension rise from Rs.6,857 to Rs.9,600.
• Lower Take-Home Salary: Employees earning close to the revised ceiling may experience increased salary deductions due to higher contributions.

Conclusion: The proposed hike in the EPF wage ceiling aligns with efforts to strengthen worker benefits and social security. While employees will see higher retirement savings, the changes may affect their current take-home pay. If approved, this will mark a major shift in retirement planning for workers in India.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.