A major change to the eligibility conditions for the Employees’ Provident Fund Scheme (EPF) and Employees’ Pension Scheme (EPS) is being considered by the EPFO—the suggested rise of the salary limit for compulsory coverage from ₹15,000 to ₹25,000 per month. By this measure, an additional one crore employees will benefit from the social security schemes.
The Rationale Behind the Change
At present, the rule stipulates that only those whose basic salary plus dearness allowance is not exceeding ₹15,000 a month are compulsorily covered under EPF and EPS. Those who earn above this limit can choose not to be a part of the scheme or may not be enrolled by the employers. The proposed increase will open up avenues for the mid-income group to enjoy the benefits of retirement savings, provident fund contributions, and pensions. As per the Labour Ministry sources, the proposal may be put up for discussion at the CBT meeting of the EPFO scheduled around December or January.
Who Will Gain
The change is aimed at bringing in employees with a salary of ₹15,001 to ₹25,000 per month into the fold of EPF/EPS which has hitherto not been covered by the automatic coverage. With this extension, the informal retirement savings and pension benefits would include a large number of workers from urban and semi-urban areas. Labour unions have been pushing for this change for a long time citing the old limit to be outdated because of inflation and rising costs.
How Contributions and Benefits Will Work
When the new ceiling is officially recognised, 12% of the salary will be paid by both the employee and the employer (the employee’s full share goes to EPF, the employer’s share is divided between EPF and EPS, i.e., 3.67% goes to EPF and 8.33% goes to EPS). The accommodation of additional employees would not only lead to an increase in the corpus of both EPF savings and pension fund but also possibly greater retirement income and pension payouts. EPFO’s current active membership is around 7.6 crore, and the corpus is approximately ₹26 lakh crore.
Considerations & What to Expect
The enlargement of coverage brings undeniable long-term benefits, but at the same time, it is a short-term trade-off as employees will have bigger PF deductions from their salaries (this could somewhat lower their monthly take-home). Some middle-income groups may not want to bear this immediate loss, even if the future gain is considerable. Employers will have to comply with greater coverage requirements and be more transparent about payroll, which could lead to an increase in administrative costs.
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