The Centre will probably make an announcement to raise the wage ceiling under the Employees’ Provident Fund Organisation (EPFO) in the next year’s Union Budget to be presented on February 1, according to experts. At present, the EPFO wage limit stands at Rs 15,000, which was revised from Rs 6,500 in 2014, and is expected to be hiked to Rs 21,000.
Earlier this year, the finance ministry reportedly received a proposal from the labour ministry to consider raising the wage limit for employees covered under the EPFO. The monthly contribution to EPF and pension scheme under Employees’ Pension Scheme (EPS-95) is linked to wage ceiling, which means employees will retire with higher retirement corpus and pension on retirement if the limit is increased to Rs 21,000, as expected.
Impact on retirement corpus and pension amount for retirees under EPS-95.
“Raising the wage ceiling to Rs 21,000 will likely increase the retirement corpus and pension amount for employees covered under the EPS-95. As an immediate impact it will also increase employers’ cost and will decrease the monthly take salary for employees. Currently, contributions towards the EPS are calculated based on the wage ceiling of Rs 15,000. With the ceiling raised to Rs 21,000, both the employer’s contribution to the Employees’ Provident Fund (3.67% going to EPF) and the pension contribution (8.33% of the salary towards EPS) would increase,” says Sandeep Agrawal, Director and Founder of Teamlease Regtech.
Also read: EPFO Wage Ceiling at Rs 21000: You’ll retire with a pension of Rs 10050 as govt mulls increasing EPS contribution limit
For employees, a higher EPF wage ceiling would significantly increase their retirement corpus as EPF contributions (12% of the salary from both employer and employee) would rise, leading to more savings over time, he adds.
Additionally, if the ceiling is raised to Rs 21,000, the pensionable salary would increase, says Agrawal, adding that this change would result in a larger monthly pension, though the exact impact would vary based on factors such as the employee’s duration of service and contributions during their employment.
For instance, under the current wage ceiling of Rs 15,000, the maximum EPS pension is calculated as Rs 7,500 per month, using the formula: Rs 15,000 x 35 / 70. If the wage ceiling is increased to Rs 21,000,
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