Budget 2024 may increase PF limit after 10 years

There is good news for salaried individuals. The central government may increase the basic salary limit for contributions to the Employees’ Provident Fund (EPF). The Ministry of Labour and Employment has prepared a proposal for this. An announcement on it is possible in the budget on July 23. If there is a raise in basic salary limit for EPF contributions, it will benefit millions of employees.

According to media reports, the government is preparing to amend the rules after 10 years to expand employees’ social security coverage. Previously, on September 1, 2014, the wage limit was increased from ₹6,500 to ₹15,000. The government is now considering increasing the basic salary limit for EPF contributions to ₹25,000.

Under the current rules, all companies and institutions with 20 or more employees come under the purview of the Employees’ Provident Fund Organization (EPFO). It is mandatory for every company to include employees with a basic salary of up to ₹15,000 in the EPF scheme.

Under the current regulations, 12% of the employee’s basic salary and dearness allowance (DA) is deducted in the form of EPF. The company also contributes an equal amount. Of this contribution, 8.33% goes to the Employees’ Pension Scheme (EPS), while 3.67% goes towards into the EPF account.

Currently, with a basic salary limit of ₹15,000, both the employee’s and employer’s contributions amount to ₹1,800 each. Of the employer’s contribution, ₹1,250 goes to the EPS and the remaining amount goes into the EPF account. For employees appointed on a Cost to Company (CTC) basis, the PF contribution is part of CTC. Some companies voluntarily include employees with a basic salary higher than the prescribed limit in the EPF scheme for additional social and retirement security. While others may cut EPF from the entire basic salary.

What if basic salary limit for EPF is raised?

If the basic salary limit is increased to ₹25,000, the employee’s EPF contribution at the rate of 12% will rise to ₹3,000. The company will also contribute ₹3,000. Out of this amount, ₹2,083 will go to the EPS and ₹917 will be deposited into the EPF account. With the increased contribution to EPS, the future pension amount for the employee will also increase. The higher contribution to the EPF will help employees save more for their retirement.

Employees who are currently outside the EPF scheme due to the ₹15,000 basic salary limit will become eligible for the scheme if the government raises the limit in the budget. This change will allow a larger number of employees to benefit from the various social security schemes offered by EPFO.

To ensure that more employees come under the EPF scheme, the government is providing special incentives. Currently, EPF offers an annual interest rate of 8.25%, which is the highest among all government savings schemes. Additionally, there is a tax benefit for investments up to ₹1.5 lakh annually in EPF. A portion of the amount received at retirement is tax-free.