EPF Scheme 2026: Choose between higher salary and more money in your PF account. Do this calculation before deciding..

EPF Scheme 2026: Under the new labor codes, employees have the flexibility to reduce their PF contribution to a certain level, thereby increasing their monthly take-home salary. While this results in a higher immediate salary, the retirement corpus accumulated over the long term could be significantly lower. Ultimately, the decision hinges on whether the additional salary received is invested wisely or simply spent. Financial experts suggest that this factor alone will determine whether employees should opt for a higher take-home salary or continue contributing a larger amount to their PF accounts.

How will the new rules increase take-home salary?

Sudhir Kaushik, Co-founder and CEO of Taxspanner, explains that while the 12% contribution to the EPF account remains, the crucial point is which component of the salary this 12% applies to. Under the previous framework, many companies calculated PF deductions based on either the actual basic salary or the statutory wage ceiling of ₹15,000, ensuring a minimum monthly contribution of ₹1,800 to the PF account. In the new labor code framework, the mandatory 12% contribution still applies only up to the statutory wage ceiling. Contributions on salary amounts exceeding this ceiling are generally voluntary and determined by mutual agreement between the employer and the employee. Consequently, in cases where employees were previously contributing to their PF accounts based on a higher salary, the employer and employee can now mutually agree to limit the monthly contribution to ₹1,800, thereby increasing the take-home salary.

For whom is the option to increase salary not ideal?

Opting to reduce the PF contribution will increase take-home salary, but it will also result in a smaller retirement corpus. Nisha Sanghvi, Director of Promor Fintech Pvt. Ltd. and Co-founder of Network FP, states that the option to increase take-home pay is not attractive for certain categories of employees:

Those who rely on the EPF as the primary source of their retirement savings.

Those whose companies contribute 12% of their full basic salary to the PF account; opting for a lower PF contribution could lead companies to stop contributing beyond the statutory limit, thereby eliminating employer-funded retirement benefits.

Employees over the age of 40, as they have fewer remaining earning years; a reduction in PF account deposits has a significant impact in their case.

Those who lack a habit of saving or do not have an emergency fund.

Investors who are wary of market volatility. The EPF currently offers an annual interest rate of 8.2%, which remains tax-efficient for most subscribers, and it is difficult to find safe, fixed-income products that offer such high returns.

What will be the impact?

Let us now consider the impact of higher take-home pay on the retirement corpus. Nisha Sanghvi explains this with an example: suppose an employee has a basic salary of ₹50,000, and ₹6,000 is deposited into their EPF account monthly (based on the 12% rate). Under the new rules, only a ₹1,800 contribution is mandatory; opting for this would increase the monthly take-home salary by ₹4,200. However, if that same amount were deposited into the EPF account, it would accumulate to a fund of approximately ₹41–₹42 lakh over 25 years at an 8.25% interest rate. Nisha notes that if the company also stops its voluntary contribution, the blow to the retirement corpus could effectively double, potentially resulting in a loss of over ₹80 lakh. Additionally, there is the tax angle to consider. An increase in take-home salary can lead to a higher tax liability, whereas the money accumulated in the EPF is largely tax-free.

So, for whom is it better to reduce contributions to the PF account?

According to Nisha, reducing contributions to the PF account may be advisable in only a few specific situations. For instance, if an employee has to pay loan installments at a high interest rate of 12–14%, prepaying that loan is a better option than earning 8.25% interest on EPF savings. Additionally, reducing EPF contributions makes sense for employees who are capable of investing their increased take-home salary more effectively.

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