PF Wage Limit Hike: Good news! Wage limit for PF account will be increased from 15000 to 21000! How will you benefit from Rs 33000?

  

EPS Calculation: Currently, a contribution of Rs 1800 is deducted from the employee’s salary on the basis of a wage of Rs 15,000. Rs 1,250 is deposited in the EPS account. With the wage limit increasing to Rs 21,000, EPS will also be affected and it will increase to Rs 1,749.

PF Contribution Rate: If you are a salaried person then this news is very useful for you. Preparations are being made to increase social security coverage at the government level. It is being told that the central government intends to increase the wage limit from Rs 15,000 to Rs 21,000 under the Employees Provident Fund (EPF) scheme. Earlier, this limit was increased by the Center in the year 2014. In 2014, the government increased the PF wage limit from Rs 6500 to Rs 15000. If this is done, it will be a big step towards universal social security. Lakhs of salaried class will benefit from this.

The decision can be taken by the new government

No step has been taken for the last several years on the proposal to increase the wage limit of EPF. Now this proposal is being reconsidered. According to the news published in Economic Times, an official associated with this whole matter said that all the options are being evaluated. Any kind of decision in this regard can be taken by the new government. He said that if the government wants to bring more and more employees under the ambit of social security, then it will have to move forward in this direction.

The pension received by the employee will be affected

The increase in wage limit will benefit millions of employees. In most states, the minimum wage is between Rs 18000 and Rs 25000. The implementation of this proposal will have a direct impact on the amount of contribution made to the EPF scheme and the Employee Pension Scheme (EPS). Along with this, it will also affect the pension received by the employee at the time of  retirement. Let us know if the salary limit is increased to Rs 21,000, what will be its effect on EPF and EPS contribution?

Pension contribution will increase

Currently, the contribution to the Employee Pension Scheme (EPS) account is calculated on the basis of a basic salary of Rs 15,000 per month. On this basis, a contribution of Rs 1800 is deducted from the employee’s salary. On this basis, the maximum contribution to the EPS account is limited to Rs 1,250 per month. Increasing the wage limit to Rs 21,000 will also affect EPS. After this, the monthly EPS contribution will be Rs 1,749 (8.33% of Rs 21000).

3.67% amount is deposited in the EPF account

Let us tell you that the entire contribution made by the employee is deposited in the EPF account. But out of the employer’s 12%, 8.33% is deposited in the Employees’ Pension Scheme (EPS). The remaining 3.67% is deposited in the EPF account. With the increase in the salary limit under the EPF scheme, the pension received at the time of retirement will also increase. According to the Employees’ Pension (Amendment) Scheme, 2014, EPS pension is calculated as follows-

Calculation of EPF pension

Number of years of pensionable service X Average monthly salary for 60 months/ 70

Understand how much the pension will increase?

Increasing the wage limit to Rs 21,000 will also affect the pension received after retirement. Suppose your pension service is of 30 years. Monthly salary is calculated from the average salary of 60 months before retirement. If someone’s average salary during 60 months is Rs 15,000 per month, then pension will also be calculated on this amount. If the employee works for more than 20 years, two years are added to the service limit as bonus. Accordingly, (32×15,000)/70= Rs 6,857. But if the same calculation is done on a wage limit of Rs 21000, then it will be (32×21000)/70= Rs 9600. According to this, there was a difference of Rs 2,743 on the monthly pension. This will give an annual benefit of Rs 32,916.

What is the rule of contribution

Under the Employees’ Provident Fund Act, 1952, both the employee and the employer contribute 12% of the basic salary, dearness allowance and retaining allowance, if any, to the EPF account. While the entire contribution of the employee in the PF account is deposited in the provident fund account, 8.33% of the employer’s contribution goes to the Employees’ Pension Scheme. The remaining 3.67% is deposited in the PF account. EPFO ​​​​subscribers are entitled to provident fund, pension and insurance benefits under the EPF and MP Act, 1952.

Will there be benefit or loss?

Will you benefit or lose from the increase in wage limit, this is a big question. Let us tell you that currently, employees deposit Rs 1800 as contribution in the EPF account for every Rs 15,000. But with the increase in the limit to Rs 21,000, this contribution will increase to Rs 2520. That is, your in-hand salary will be reduced by Rs 720. But you will get the benefit of this in the long term on EPF contribution and pension received after  retirement.

When was the last change made?

Earlier, the change was made in the year 2014. Then the wage limit was increased from Rs 6,500 to Rs 15,000. In contrast, the salary limit in the Employees State Insurance Corporation (ESIC) is higher. ESIC has a higher salary limit of Rs 21,000 since 2017.

When and how much 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—-3500 rupees
> 1994-2001—-5000 rupees
> 2001-2014—-6500 rupees
> 2014—-15000 rupees