EPF wage ceiling may rise to ₹25,000, here’s how it could boost your EPS pension and affect PF contributions

The government may be set to revise the Employees’ Provident Fund (EPF) wage ceiling for the first time in over a decade, a move that could expand retirement benefits for lakhs of salaried employees.

Department of Expenditure has approved a proposal to raise the EPF wage ceiling from ₹15,000 to ₹25,000 a month, Moneycontrol reported, citing a government source. The proposal, however, is yet to receive approval from the Union Cabinet, after which it will need to be notified before taking effect.

The existing wage ceiling of ₹15,000 has been in force since September 1, 2014. It determines the salary up to which employees are mandatorily covered under the EPF and the Employees’ Pension Scheme (EPS).

More employees could come under social security cover

If the proposal is approved, employees earning a basic salary and dearness allowance (DA) of up to ₹25,000 a month would fall within the revised statutory wage ceiling for mandatory EPF and EPS coverage, replacing the current ₹15,000 threshold.

Under the EPF framework, both the employer and employee contribute 12% of the employee’s basic salary and DA every month. From the employer’s contribution, 8.33% of wages, subject to the statutory wage ceiling, is diverted to the Employees’ Pension Scheme, while the balance is credited to the EPF account. Employees do not contribute directly to the pension fund.

For employees who become newly eligible under the revised ceiling, monthly PF deductions could increase, resulting in a lower take-home salary. At the same time, higher contributions would strengthen retirement savings and extend social security benefits to a larger section of the organised workforce.

Existing EPF members will continue to remain members even if their salary subsequently exceeds the wage ceiling, in line with current EPFO rules.

Higher wage ceiling could lift EPS pension

While the proposal does not change the pension formula, it increases the maximum salary that can be considered for pension calculations.

According to EPFO, the monthly pension under EPS is calculated using the following formula:

Monthly pension = (Pensionable salary × Pensionable service) ÷ 70

Pensionable salary is the average monthly basic pay and DA drawn during the last 60 months before exit from the pension fund. Members completing 20 years or more of pensionable service are also given a two-year weightage while calculating eligible service.

If the wage ceiling is raised to ₹25,000, the maximum pensionable salary used in the formula would increase by nearly 67% over the current ceiling of ₹15,000. For instance, an employee with 10 years of pensionable service would be eligible for a maximum monthly pension of about ₹3,571 under a ₹25,000 ceiling, compared with about ₹2,143 under the existing ceiling, assuming the higher wage ceiling applies throughout the service period. Similar increases would apply across longer service periods because the pensionable salary considered for the calculation would be higher.

For now, however, employees will continue to be governed by the existing ₹15,000 wage ceiling until the proposal receives Cabinet approval and the government issues an official notification.