EPS contribution limit may be hiked: How it can impact you :The news that the Central Government may increase the wage ceiling limit under EPFO to Rs 21,000 per month is much discussed these days. However, these news have not yet been confirmed by any official source. But if these speculations turn out to be true and such changes are actually implemented, then it may impact salaried employees differently. Therefore, it is important for employed employees to understand from now on what effect this possible decision can have on their provident fund and pension. But before coming to this issue, let us know what the wage ceiling limit means.
What is the wage ceiling limit?
Wage ceiling limit is the maximum salary limit on the basis of which employees’ contribution to EPF and EPS (Employees’ Provident Fund and Employees’ Pension Scheme) is decided. At present this limit is Rs 15,000 per month, but the government is considering increasing it to Rs 21,000 per month.
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How will it be affected by increasing the wage ceiling limit?
According to the current rules, employees whose basic salary is more than Rs 15,000 per month cannot join the EPS scheme. Once the new limit is implemented, employees getting a salary of Rs 21,000 will also be able to join the EPS scheme and will be entitled to pension after retirement. This will increase the number of employees getting this facility. Apart from this, at present, out of 12% contribution of the employer, 8.33% is deposited in the EPS (pension) account and 3.67% in the EPF account. Currently, the maximum limit for contribution to EPS is Rs 1,250 per month, which is based on the wage ceiling limit of Rs 15,000. If the wage ceiling limit is increased to Rs 21,000, the contribution to EPS will increase to Rs 1,749 per month. Due to this, while the amount deposited in EPS will increase, the amount deposited in EPF account will decrease.
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How much pension will you get at the time of retirement?
The calculation formula for pension under EPS is: (number of years of service x average monthly salary)/70. Under this formula, if the wage ceiling increases from Rs 15,000 to Rs 21,000, then the pension received at the time of retirement will also be higher. For example, after 30 years of service, the pension based on the current ceiling works out to Rs 6,857, whereas if the new limit is implemented, it will be Rs 9,600. This can also be understood with the help of the example given below:
Suppose the basic salary of an employee is Rs 25,000 per month. His employer’s contribution of 12% is Rs 3,000:
In such a situation, under the current rules, at the rate of 8.33%, Rs 1,250 is deposited in EPS and Rs 1,750 is deposited in EPF account.
– If the limit increases to Rs 21,000, then Rs 1,749 will be deposited in EPS and Rs 1,251 in EPF.
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What will be the profit and loss for the employees?
If the wage ceiling limit is increased, employees will get more benefits in the form of pension. Besides, the number of employees covered under the EPS scheme will also increase. This will facilitate getting stable income after retirement. But increasing the contribution in the EPAS account also means that the contribution in the EPF account will reduce, which may reduce the amount received at retirement.
