EPFO Latest Update: The central government may soon increase the salary limit under the Employees' Provident Fund (EPF) scheme from Rs 15,000 to Rs 21,000. The effect of this will be that the employee's contribution to EPF and Employee Pension Scheme (EPS) will also increase.
According to a report by The Economic Times, this new rule of the government is being seen as a step towards improving social security for employees by broadening the EPFO ​​coverage.
Change happened 10 years ago.
Currently, the salary limit is Rs 15,000 for the last 10 years. It was last increased in the year 2014. Then it was increased from Rs 6500 to Rs 15,000. The new rule will change the contribution amount by both employees and companies/government for retirement and pension savings.
What will be the effect on your salary?
Increasing the salary limit by the government will have both benefits and losses for the employees. Kinjal Champaneria, partner, Solomon & Co., says, "If we talk about the benefits, then increasing the salary limit will increase the contribution to EPS, which will give more pension on retirement. Apart from this, contribution to EPF will also increase, which will increase the retirement fund. Apart from this, employees will feel more financial security by contributing more to EPF.
What will be the loss?
Under Section 6 of the EPF Act, the employee's contribution to EPF has been fixed at 12% of the basic salary. In such a situation, due to an increase in salary limit, employees will have to face more salary cuts, which will reduce their in-hand salary. The effect of this will be that employees earning close to the salary limit may face pressure.
How much pension will be given?
If you are currently 35 years old and are planning to retire at the age of 58 and the monthly salary is Rs 23000 per month, then how much pension will you get after retirement?
Job tenure: 23 years (age 35 to 58 years), pensionable salary: 21000 (if the limit increases)
The pension amount under EPS is calculated as follows:
Pension = (Years of service × Pensionable salary) / 70
That is, the estimated monthly pension at the age of 58 years will be around Rs 6,900 with the increased limit. Whereas, under the current limit, the pension will be around Rs 4,929 per month.