The Ministry of Labour and Employment has put forth a significant EPF proposal that could impact millions of employees across India.
The government is considering raising the wage ceiling for calculating provident fund contributions—from the existing Rs 15,000 to Rs 21,000. Let’s delve into the details:
Background and Context
Since September 1, 2014, the maximum wage limit for provident fund deduction has remained fixed at Rs 15,000. This is as per the Employees’ Provident Fund Organisation (EPFO).
However, the recent proposal aims to revise this limit upward. This reflects changing economic realities and the need to enhance social security for workers.
The Proposed Change: If approved, the new wage ceiling will be Rs 21,000. This means that employees earning up to Rs 21,000 per month will contribute a portion of their salary to the provident fund.
How EPF Contributions Work
Employee Contribution: Currently, both employees and employers contribute 12% of each of the employee’s basic salary and dearness allowance to the EPF. The full amount of the employee’s contribution goes into the provident fund account.
Employer Contribution: Of the employer’s 12% contribution, 8.33% is allocated to the Employees’ Pension Scheme (EPS). The remaining 3.67% goes into the provident fund account.
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Impact on EPS Contributions and Retirement Pension
The proposed wage hike will affect contributions made to the Employees’ Pension Scheme (EPS).
Currently, EPS contributions are calculated based on the basic salary of Rs 15,000 per month. This includes limiting the maximum contribution to Rs 1,250.
If the wage ceiling increases to Rs 21,000, the EPS contribution will rise to Rs 1,749 (8.33% of Rs 21,000).
An increase in the wage ceiling will also result in a higher pension amount at the time of retirement.
The formula for calculating the EPS pension considers the number of years of pensionable service and the average monthly salary.
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