Govt may hike wage ceiling under EPFO, say reports. Click to know impact of PF wage limit hike

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The recent proposal to increase the wage limit for PF accounts from Rs 15,000 to Rs 21,000 has sparked discussions about its implications for employees. Here’s how you can benefit from this change:

Key changes and calculations:

1. EPS Contribution Increase: Currently, based on a salary of Rs 15,000, a monthly contribution of Rs 1,800 is deducted, with Rs 1,250 deposited in the EPS account. With the new limit of Rs 21,000, the EPS contribution will increase to Rs 1,749.

2. EPF Contribution Split: Out of the employer’s 12% contribution, 8.33% goes to the EPS, and the remaining 3.67% is deposited in the EPF account.

3. Impact on Pension: The pension received after retirement will increase due to the higher wage limit. For example, if the average salary over 60 months before retirement is Rs 15,000, the monthly pension would be Rs 6,857. With the new limit, it would increase to Rs 9,600, resulting in an annual profit of Rs 32,916.

Rule of Contribution:

Both the employee and employer contribute 12% of the basic salary, dearness allowance, and retaining allowance to the EPF account. While the employee’s entire contribution goes to the PF account, 8.33% of the employer’s contribution is allocated to the EPS.

Benefit or Loss Analysis:

Currently, on a salary of Rs 15,000, Rs 1,800 is deposited in the EPF account. With the new limit, this contribution will increase to Rs 2,520, resulting in a reduction of Rs 720 in the in-hand salary. However, the long-term benefits include higher EPF contributions and increased pension after retirement.

Historical Context:

The last change in the wage limit occurred in 2014, increasing it from Rs 6,500 to Rs 15,000. In comparison, the salary limit in the Employees’ State Insurance Corporation (ESIC) has been higher at Rs 21,000 since 2017.

When was the wage limit?

  • 1952-1957—-300 rupees
  • 1957-1962—-500 rupees
  • 1962-1976—-1000 rupees
  • 1976-1985—-1600 rupees
  • 1985-1990—-2500 rupees
  • 1990-1994—-Rs 3500
  • 1994-2001—-Rs 5000
  • 2001-2014—-Rs 6500
  • 2014—-Rs 15000

While the immediate impact may seem like a reduction in in-hand salary, the long-term benefits, including higher EPF contributions and increased pension after retirement, make the hike in the wage limit a significant step towards enhancing social security for employees.