EPFO: Understand the full equation of in-hand salary and PF limits in simple terms
An increase in the EPFO wage limit could lead to changes in employees' PF contributions. This may impact in-hand salary, the amount accumulated in the PF account, and social security benefits.
If PF is deducted from your salary every month, the increased EPFO wage limit could affect both your in-hand salary and your future savings. Under the proposed new system, the wage limit for PF calculation is set to rise from ₹15,000 to ₹25,000. This could directly impact the PF contributions made by both the employee and the employer.
However, the actual change in your in-hand salary will depend on how your company structures your salary and calculates PF. If you want to understand how the new PF limit will affect your pocket and what changes might occur regarding future pension and insurance benefits, let’s break down the math in simple terms.
How will an increase in PF contribution affect in-hand salary?
If your PF contribution was previously capped based on a salary limit of ₹15,000, your monthly contribution (at 12%) amounted to ₹1,800. However, under the new limit of ₹25,000, this contribution could rise to ₹3,000.
Previous employee contribution: 12% × 15,000 = 1,800 per month
Contribution at the new limit: 12% × 25,000 = 3,000 per month
Additional PF deduction: 1,200 per month
Additional annual contribution: 14,400
Similarly, the employer's contribution could also rise from 1,800 to 3,000. However, the actual reduction in the employee's in-hand salary will depend on their company's salary structure.
How many employees will benefit from the new PF limit?
Raising the salary limit from ₹15,000 to ₹25,000 will help bring more employees under the EPFO ambit. This could bring approximately 51 lakh additional employees under mandatory PF coverage.
In fact, the EPFO is not limited to just PF savings; it also offers benefits under the Employees' Pension Scheme (EPS) and the Employees' Deposit Linked Insurance Scheme (EDLI). Therefore, the increase in the salary limit could also impact the benefits provided by these schemes.
