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PF Contribution Rate: If you are a job holder 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 salary limit under the Employees Provident Fund (EPF) scheme from Rs 15,000 to Rs 21,000. Earlier, the Center had increased this limit in the year 2014. In 2014, the government increased the PF salary limit from Rs 6500 to Rs 15000. If this happens, it will be a big step towards universal social security. This will benefit millions of salaried class.
This decision can be taken by the new government.
No action has been taken on the proposal to increase the salary limit of EPF for the last several years. 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.
This will affect the pension received by the employee
The increase in the salary limit will benefit millions of employees. In most states, the minimum salary 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 Employees' Pension Scheme (EPS). Along with this, it will also affect the pension received by the employee at the time of retirement. Let us know what will be the effect on EPF and EPS contribution if the salary limit is increased to Rs 21,000?
Pension contributions 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 salary limit to Rs 21,000 will also affect EPS. After this, the monthly EPS contribution will become Rs 1,749 (8.33% of Rs 21000).
3.67% of the 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 12% of the employer, 8.33% is deposited in the Employees' Pension Scheme (EPS). The remaining 3.67% is deposited in the EPF account. Increasing the salary limit under the EPF scheme will also increase the pension received at the time of retirement. 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 salary 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 on 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, then two years are added to the service limit as a bonus. According to this, (32×15,000)/70= Rs 6,857. But if the same calculation is done on a salary limit of Rs 21000, then it will be (32×21000)/70= Rs 9600. According to this, there is a difference of Rs 2,743 on 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 wage, dearness allowance and retaining allowance, if any, to the EPF account. While the entire employee's contribution to 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 & MP Act, 1952.
Will there be profit or loss?
Will the increase in salary limit benefit you or harm you, this is the big question. Let us tell you that currently employees deposit Rs 1800 as contribution in the EPF account for every Rs 15,000. But by increasing the limit to Rs 21,000, this contribution will increase to Rs 2520. That is, your in-hand salary will decrease 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, a change was made in the year 2014. Then the salary limit was increased from Rs 6,500 to Rs 15,000. In contrast, the salary limit is higher in the Employees State Insurance Corporation (ESIC). The salary limit in ESIC is Rs 21,000 higher since 2017.
When and what was the salary cap?
> 1952-1957—- Rs 300
> 1957-1962—- Rs 500
> 1962-1976—-1000 rupees
> 1976-1985—- Rs. 1600 > 1985-1990—- Rs. 2500
> 1990-1994—-Rs 3500 > 1994-2001—-5000
Rupees > 2001-2014—-Rs 6500 > 2014—-Rs 15000