The government has introduced a major change in EPFO rules recently. The new rule increases the basic salary limit for EPFO coverage to ₹25,000.
Earlier, employees with a basic salary limit of ₹15,000 came under this coverage. However, the revised limit will bring around 51 lakh private sector employees into EPFO.
Moreover, the change expands retirement benefits for more workers. The new limit also includes dearness allowance under the basic salary calculation.
Three Major Benefits Available Under EPFO
For private sector employees, EPFO works as an important retirement savings scheme. The scheme provides three major benefits to workers. Firstly, employees receive their accumulated EPF amount as a lump sum after retirement. Secondly, EPFO provides monthly pension benefits after retirement under its pension scheme.
However, employees must fulfil certain conditions for receiving pension benefits. Additionally, the Employees’ Deposit Linked Insurance (EDLI) scheme provides life insurance coverage.
How The New ₹25,000 Limit Works
According to EPFO rules, employees contribute 12% of their basic salary into their EPF account. Meanwhile, employers also contribute 12% from their side.
However, the employer contribution divides into two parts. Around 8.33% goes towards the employee pension fund.
The remaining 3.67% contribution goes into the EPF account. Therefore, the revised rule will include employees with basic salaries up to ₹25,000.
For example, an employee earning ₹25,000 basic salary will contribute ₹3,000 monthly. The company will also deposit ₹3,000 as its contribution.
Furthermore, companies must follow this rule under the updated system.
Impact On Employees With Higher Salaries
Employees earning ₹40,000 or ₹50,000 basic salary may see different effects. Experts explain that many companies already calculate PF on actual basic salary.
For example, if an employee earns ₹40,000 and the company uses full basic salary, the take-home salary will not change.
In this case, 12% of ₹40,000 means ₹6,000 will enter the employee account. The company will also contribute ₹6,000.
From this amount, 8.33% will move towards the pension fund. Thus, retirement benefits will continue similarly.
Effect On Take Home Salary
However, some companies may follow only the new ₹25,000 wage limit. In that situation, employees may see a direct salary impact.
Under this method, ₹3,000 will get deducted from the employee salary as PF contribution. The company will also contribute ₹3,000.
Consequently, the bank account salary may reduce compared with earlier amounts. The reason lies in the increased PF deduction limit.
Previously, companies used the ₹15,000 maximum limit for PF calculations. Therefore, the deduction remained lower.
Now, the ₹25,000 limit increases the PF contribution amount. This change also applies to employees earning ₹50,000 basic salary.
Even with a ₹50,000 basic salary, companies may use the maximum ₹25,000 limit for PF contribution.
