EPF limit: 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. This will increase the employee’s contributions to the Employee Pension Scheme (EPS) and EPF.
The Economic Times
reported that by expanding EPFO coverage, this new government regulation is viewed as a step toward enhancing social security for workers. Ten years ago, the transformation took place. For the past ten years, the EPF limit is currently Rs 15000. The last time it was raised was in 2014. It was then raised to Rs 15000 from Rs 6500. The new rule will alter the amount that employees, businesses, and the government contribute to retirement and pensions.
What effect will it have on your pay?
Employees will experience both gains and drawbacks if the government raises the salary cap. “If we talk about benefits, raising the salary limit will increase the contribution to EPS, which will provide more pension on retirement,” explains Kinjal Champaneria, partner at Solomon & Company. In addition to this, the EPF contribution will rise, increasing the retirement fund. In addition, workers will feel more secure about their financial future if they increase their EPF contributions. The employee’s EPF contribution is set at 12% of their base pay under Section 6 of the EPF Act. In such a situation, due to an increase in salary limit, employees will have to face more salary cuts, due to which their in-hand salary will decrease. The effect of this will be that employees earning close to the salary limit may face pressure.
What is the amount of your pension?
How much pension would you receive after retirement if you are 35 years old now and intend to retire at 58 years old with a monthly salary of Rs 23,000? 23 years of service (35–58 years old), pensionable salary: Rs 21,000 (if the cap is raised). The following formula is used to determine the pension amount under EPS:
(Years of service × Pensionable wage) / 70 is the pension.
That is, with the higher ceiling, the expected monthly pension at age 58 will be approximately Rs 6,900. In contrast, the pension would be around Rs 4,929 per month under the existing cap.
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