According to reports, the central government intends to the PF limit increase scheme wage ceiling limit from the current limit of Rs. 15,000 to Rs. 21,000 in the near future. Last time the PF limit increase by the central government in September 2014, which was eight years ago.
The current salary threshold for mandatory EPF benefits is 15,000 rupees. This changes will get the Employees’ Pension Fund (EPF) in line with other security like Employees State Insurance Corporation (ESIC), which also has a cap of 20,000 per person.
The most recent wage ceiling increase, which took place in 2014 after eight years of stagnation, was the EPF’s ninth overall.
While the EPF benefit is only voluntarily extended to employees making more than 15,000, many employers do so on a voluntary basis.
According to current regulations, any business with 20 or more employees must register with the EPFO and must compel those with incomes up to the limit to receive benefits.
Although the EPF is a lifetime investment, there are provisions for early withdrawals as well. The amount of contributions made to the EPF scheme and the Employees’ Pension Scheme would change if this proposal is approved (EPS). It can affects the pension amount of an employee when they will retire.
Read More: SBI PPF Calculator
What will happen to EPF and EPS contributions if PF Limit Increase?
1.Hike in EPS contributions
Currently, the basic salary is capped at Rs 15,000 per month when calculating contributions to the Employees’ Pension Scheme (EPS) account. Therefore, the monthly maximum contribution to an EPS account is currently set at Rs 1,250. Therefore, this contribution will increase if the government raises the salary ceiling to Rs. 21,000 per month. According to the report, Mallika Noorani, Senior Partner, Parinam Law & Associates, “The monthly EPS contribution will become Rs 1,749 (8.33% of Rs 21,000).
The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 mandates that both the employee and the employer match each other’s contributions to the EPF account at a rate of 12% of the employee’s basic salary.
On the other hand, of the 12% employer contribution, 8.33% is deposited in the Employees’ Pension Scheme, and the remaining 3.67 % is deposited in the Employee Pension Fund (EPF) account.
2.Higher pension at retirement
An increase in the EPF scheme’s wage cap will also result in a higher pension payout when the employee retires. The Employees Pension (Amendment) Scheme, 2014 states that the following formula should be used to determine the EPS pension:
(Number of years of pensionable service X Average monthly salary for 60 months)/70.
The amount of pension received will go up if the wage ceiling limit threshold is raised to Rs. 21,000 from the current Rs. Noorul Hassan, Partner, Lakshmikumaran Sridharan Attorneys, reportedly uses an example to illustrate this point.
However, if the PF limit increase, the calculation’s average monthly wage will rise to Rs 21,000 instead. In this situation, the employee is entitled to a monthly pension of Rs. 10,200, or (34×21,000)/70. According to the report, an increase in the wage threshold of Rs 6,000 raises the monthly pension by about Rs 2,900.
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3. Wider EPS coverage for employees
A person cannot join EPS even if they are a part of the EPF programme if their monthly basic salary exceeds Rs 15,000, according to the EPF laws. However, if the salary cutoff is raised to Rs. 21,000, then workers who enroll in the EPF programme with a basic salary of up to Rs. 21,000 will also be eligible to join EPS and avail of its benefits such as pension and disability coverage. This move would benefit a larger number of workers who were previously excluded from the EPS due to the lower salary cutoff.
4.May lower EPF corpus
A lower EPF corpus for current employees may result from raising the EPS contribution from the current level of Rs 1,250 per month to the proposed Rs 1,749. Who knows why? This is due to the maximum deposit an employer may currently make to the EPS account being Rs 1,250. Any remaining funds are added to the EPF account. The balance deposit into the EPF account will decrease if the EPS deposit is increased.