The Centre will probably make an announcement to raise the wage ceiling under the Employees’ Provident Fund Organisation (EPFO) in the next year’s Union Budget to be presented on February 1, according to experts. At present, the EPFO wage limit stands at Rs 15,000, which was revised from Rs 6,500 in 2014, and is expected to be hiked to Rs 21,000.
Earlier this year, the finance ministry reportedly received a proposal from the labour ministry to consider raising the wage limit for employees covered under the EPFO. The monthly contribution to EPF and pension scheme under Employees’ Pension Scheme (EPS-95) is linked to wage ceiling, which means employees will retire with higher retirement corpus and pension on retirement if the limit is increased to Rs 21,000, as expected.
Impact on retirement corpus and pension amount for retirees under EPS-95.
“Raising the wage ceiling to Rs 21,000 will likely increase the retirement corpus and pension amount for employees covered under the EPS-95. As an immediate impact it will also increase employers’ cost and will decrease the monthly take salary for employees. Currently, contributions towards the EPS are calculated based on the wage ceiling of Rs 15,000. With the ceiling raised to Rs 21,000, both the employer’s contribution to the Employees’ Provident Fund (3.67% going to EPF) and the pension contribution (8.33% of the salary towards EPS) would increase,” says Sandeep Agrawal, Director and Founder of Teamlease Regtech.
For employees, a higher EPF wage ceiling would significantly increase their retirement corpus as EPF contributions (12% of the salary from both employer and employee) would rise, leading to more savings over time, he adds.
Additionally, if the ceiling is raised to Rs 21,000, the pensionable salary would increase, says Agrawal, adding that this change would result in a larger monthly pension, though the exact impact would vary based on factors such as the employee’s duration of service and contributions during their employment.
For instance, under the current wage ceiling of Rs 15,000, the maximum EPS pension is calculated as Rs 7,500 per month, using the formula: Rs 15,000 x 35 / 70. If the wage ceiling is increased to Rs 21,000, the new pension would be calculated as Rs 21,000 x 35 / 70, resulting in a monthly pension of Rs 10,050. This represents a boost of Rs 2,550 per month in the EPS pension, significantly increasing the retirement income for eligible employees and providing greater financial security post-retirement.
Labour unions demanding the wage limit to be raises to Rs 25,000
Labour unions have been requesting the government to raise the EPF wage ceiling to Rs 25,000 from the current Rs 15,000, primarily to address rising living costs and inflation. “As salaries and expenses have steadily increased over the years, the current ceiling of Rs 15,000 is considered insufficient to ensure adequate post-retirement income for workers. Many employees, particularly in the organized sector, earn well above this limit, and unions argue that higher wages should be reflected in their retirement benefits,” says Agrawal.
For example, with the ceiling at Rs 15,000, a large portion of workers’ wages remains outside the purview of pension calculations, leaving them with lower-than-expected pensions. By raising the limit to Rs 25,000, a larger percentage of their earnings would be considered for both EPF and EPS contributions, ensuring better retirement security, he adds.
Unions also highlight that the Rs 15,000 ceiling was set in 2014, and a significant hike is pending to match economic conditions. A higher ceiling would extend retirement and pension benefits to a broader section of the workforce, particularly those in the middle-income bracket, thus providing better social security for millions of employees across India.
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EPF wage ceiling revisions over the years
The EPF wage ceiling has seen several revisions over the years, starting from Rs 500 in 1962. It increased to Rs 1,600 in 1976 (220%), Rs 2,500 in 1985 (56%), Rs 3,500 in 1990 (40%), Rs 5,000 in 1994 (43%), Rs 6,500 in 2001 (30%), and Rs 15,000 in 2014 (130%). With the rising inflation averaging 6-8% annually and wage growth, it is expected that the ceiling would be increased to Rs 21,000 or higher.
In 2023, India saw an inflation rate of 5.1%, driven by rising prices in food and energy sectors. The inflation rate in 2024 spiked to 6.21% in October, mainly due to sharp increases in food prices. These inflationary pressures suggest that the purchasing power of workers has eroded, making a revision of the wage ceiling necessary to maintain social security benefits in line with current economic conditions.
“Given this context, along with the historical trend of wage ceiling hikes in response to inflation, it is highly likely that the government will increase the EPF ceiling in the next Union Budget session, potentially raising it to Rs 21,000 or more. This would address the inflation and the rising wage levels in the economy, ensuring that workers continue to benefit from adequate social security coverage,” says Agrawal.