There is important and positive news for millions of salaried employees in India. The central government is seriously considering increasing the salary limit for mandatory Provident Fund (PF) contributions under the Employees’ Provident Fund Organisation (EPFO).
At present, the salary ceiling for mandatory EPF contributions is ₹15,000 per month. The government is planning to raise this limit to ₹25,000 per month.
If this proposal is approved, it will be one of the biggest changes in the EPF system since 2014. This step aims to strengthen social security and retirement savings for employees across the country.
What Does the Increase in Salary Limit Mean?
Under the current EPF rules, employees whose basic salary is up to ₹15,000 per month must join the EPF scheme. In this system:
Employees contribute 12% of their basic salary to PF.
Employers also contribute 12% of the employee’s salary to PF.
However, over the last 11 years, inflation and average salaries have increased significantly. Because of this, the ₹15,000 limit is now considered outdated. Many employees earning more than ₹15,000 are not fully covered under the EPF system.
By increasing the salary limit to ₹25,000, the government wants to include more employees in the PF system. This change will help millions of workers who are currently outside the PF coverage or are contributing less than they should.
Bigger Pension and Retirement Savings for Employees
One of the biggest benefits of this change will be seen in employees’ pensions under the Employees’ Pension Scheme (EPS).
Currently, pension contributions are calculated based on the ₹15,000 salary cap. If the cap is raised to ₹25,000:
The monthly pension contribution will increase.
The total amount deposited in the pension account will be higher.
After retirement, employees will receive a higher monthly pension.
In addition to pension benefits, the total PF savings (corpus) will also grow faster.
Since PF will be deducted from a larger part of the salary, both employee and employer contributions will increase. Over time, this will create a much bigger retirement fund for employees.
Impact on In-Hand Salary
While the change brings long-term benefits, it may slightly affect employees’ in-hand salary.
Because PF contribution is 12% of the salary limit:
Employees will have to contribute more money to PF.
This means a small reduction in their monthly take-home salary.
However, experts believe this is a positive change. The extra PF contribution is not a loss but a form of forced savings.
Since employers will also increase their contributions, employees will benefit more in the long run through higher savings and better financial security after retirement.
Financial Impact on Companies
The government is also carefully considering how this change will affect companies.
If the salary limit is increased:
Companies will have to pay higher PF contributions for employees.
This will increase their overall financial burden.
This is especially important for small and medium enterprises (MSMEs), which may find it difficult to handle additional costs.
Therefore, the government is reviewing all aspects of the proposal to ensure that it does not negatively impact businesses while still benefiting employees.
A Major Reform After 11 Years
The last major change in the EPF salary limit happened in 2014, when the government increased the cap from ₹6,500 to ₹15,000 per month.
Since then, India’s economy and wage structure have changed significantly. Salaries have risen, and the cost of living has increased. Because of this, several high-level government committees have recommended raising the EPF salary limit.
At present, the proposal is awaiting approval from the Ministry of Finance. If it gets approval, it will:
Increase employees’ savings.
Improve retirement security.
Expand the coverage of social security schemes.
Strengthen the overall EPF system in India.
