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By:

Sumit Ranjan Das

21 August 2024 at 4:08:59 pm

EPFO’s Big Wage-Band Reset

Twelve years is a long time for a wage ceiling to remain unchanged. The last revision came in September 2014, when the limit was raised from Rs.6,500 to Rs.15,000. Last week, the Union Cabinet approved another increase, taking the ceiling to Rs.25,000 a month with effect from 17 September 2026. The government’s estimate is that more than 51 lakh additional employees will come within mandatory EPFO coverage as a result of the change. For employers and payroll professionals, however, the...

EPFO’s Big Wage-Band Reset

Twelve years is a long time for a wage ceiling to remain unchanged. The last revision came in September 2014, when the limit was raised from Rs.6,500 to Rs.15,000. Last week, the Union Cabinet approved another increase, taking the ceiling to Rs.25,000 a month with effect from 17 September 2026. The government’s estimate is that more than 51 lakh additional employees will come within mandatory EPFO coverage as a result of the change. For employers and payroll professionals, however, the headline number is only the starting point. The more important questions are who will be covered, which wages will be taken into account and how the revised provisions will be implemented. Wage Ceiling The existing wage ceiling of Rs.15,000 a month is being raised by Rs.10,000, or 66.7 percent, to Rs.25,000. The change takes effect from 17 September 2026 and marks the first revision since September 2014. The government expects more than 51 lakh additional employees to be covered. Estimated expenditure is about Rs.56,696 crore over five years, while annual government outgo is expected to rise to approximately Rs.11,339 crore. The standard contribution remains 12 percent each from the employee and employer, subject to applicable provisions. The Cabinet said the decision will expand access to provident-fund savings, pension protection under the Employees’ Pension Scheme (EPS) and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI), in accordance with the applicable scheme provisions. The wage ceiling is not merely an administrative threshold. It determines the point at which mandatory EPF coverage applies under the existing framework. At present, a fresh employee joining employment at wages above Rs.15,000 a month is not automatically brought within mandatory EPF coverage and may remain outside mandatory provident-fund, pension and associated insurance protection, subject to applicable statutory provisions. The revised ceiling will bring a substantial section of employees earning between Rs.15,000 and Rs.25,000 within the mandatory coverage framework. The government has also quantified the fiscal impact. The estimated expenditure is about Rs.56,696 crore over five years, while annual government outgo is expected to rise to approximately Rs.11,339 crore, compared with existing annual budgetary support of about Rs.10,250 crore. The Labour Ministry has linked the revision to sustained wage growth, rising incomes and the continued expansion of formal employment since the previous revision in 2014. Payroll Illustration Consider an employee earning Rs.22,000 a month who becomes subject to mandatory coverage under the revised ceiling. At the standard 12 percent contribution rate, if the full eligible wage is used as the contribution base, the employee’s contribution would rise from Rs.1,800 to Rs.2,640 a month, while the employer’s contribution would similarly rise from Rs.1,800 to Rs.2,640. Total monthly contributions would therefore increase from Rs.3,600 to Rs.5,280 — a combined increase of Rs.1,680. However, this should not be treated simply as Rs.1,680 of additional employee savings. Contributions are allocated between EPF and EPS components as prescribed, with the EPF component accumulating in the employee’s account and the EPS component providing pension benefits subject to scheme conditions. The Rs.22,000 example is illustrative, not a universal payroll formula. The final treatment of wage components, existing employees in this band, EPS allocation and transitional matters will depend on the statutory notification and EPFO implementation instructions. For payroll professionals, the immediate task is to assess the operational impact. Key questions include the effective date for existing employees and new joiners, which wage components will count towards PF, whether the 10 percent concessional rate for notified establishments will continue, how the revised ceiling will interact with EPS pensionable wages, and what changes will be required in payroll systems. The Cabinet approval establishes the policy decision; the formal Gazette notification and EPFO instructions will determine how it is translated into payroll processes. The revised ceiling is the first increase since September 2014 and is expected to bring more than 51 lakh additional employees, particularly those in the Rs.15,000-Rs.25,000 wage band, under mandatory EPFO coverage. For them, the change can expand access to provident-fund savings, EPS pension and EDLI insurance, subject to scheme provisions. For employers, it means reviewing payroll costs, employee data, eligible wage components, contribution calculations and compliance systems. The government has described the move as part of efforts to extend statutory social security and strengthen formal employment. The policy has been announced. For payroll professionals, the next chapter is implementation. (The writer is a Cost and Management Accountant and founder of TaxoDas. Views personal

Advance Tax Non-Compliance Can Lead to Interest Burden

Writer: Sayli Gadakh
Sayli Gadakh
Jun 9
3 min read

Many taxpayers assume that TDS is sufficient, only to discover additional tax and interest liabilities when filing their returns.

In the minds of many taxpayers, income tax is something that is paid only at the time of filing the income tax return. However, the Income-tax Act contains a concept known as 'advance tax', which requires taxpayers to pay tax during the financial year itself as income is earned. Despite its importance, advance tax remains one of the most overlooked aspects of tax compliance.


Advance tax, often referred to as the "pay-as-you-earn" system, applies when a taxpayer's estimated tax liability for a financial year exceeds the prescribed limit after considering TDS and other available tax credits. The objective is to ensure timely collection of taxes and reduce the burden of paying the entire amount at the end of the year.


A common misconception is that advance tax is relevant only for business owners and large corporations. In reality, salaried employees, professionals, freelancers, investors, and even pensioners may be required to pay advance tax if they earn income from sources where tax is not adequately deducted at source.


Consider the case of Sandeep, a salaried employee working in a private company. His employer regularly deducted TDS from his salary, and therefore he believed that all his tax obligations had already been fulfilled. During the financial year, Sandeep earned substantial profits by selling equity shares that he had invested in over the years. He also received significant interest income from fixed deposits maintained with different banks.


Since sufficient tax had not been deducted on these additional incomes, Sandeep's overall tax liability increased considerably. However, being unaware of the advance tax provisions, he did not make any advance tax payments during the year. At the time of filing his income tax return, he was surprised to learn that he was not only required to pay the balance tax but was also liable to pay interest for non-payment of advance tax. Had Sandeep reviewed his tax position during the year and paid the applicable advance tax on time, he could have avoided the additional financial burden.


This situation is not uncommon. Many taxpayers earn income from capital gains, fixed deposits, rental properties, professional services, or freelance assignments and assume that tax deducted at source is sufficient. As a result, they often overlook their advance tax obligations until the return filing season arrives.


The Income-tax Act prescribes specific due dates for payment of advance tax during the financial year. Taxpayers are expected to estimate their income and discharge their tax liability in instalments. While exact income estimation may not always be possible, a reasonable assessment based on available information can help ensure compliance and reduce the risk of interest liability.


One of the key reasons for non-compliance is a lack of awareness. Taxpayers often focus only on filing their income tax returns and do not realise that tax may be required to be paid much earlier. In some cases, a one-time transaction such as the sale of property, redemption of mutual funds, or receipt of a large professional fee can significantly increase the tax liability and trigger the requirement to pay advance tax.


Another common misconception is that tax can simply be paid at the time of filing the return without any consequences. While the tax can certainly be paid later, failure to pay advance tax when required may result in interest under the provisions of the Income Tax Act. This additional cost can often be avoided through timely planning and regular review of income sources.


From a Chartered Accountant's perspective, advance tax should not be viewed merely as a compliance requirement. It is an important aspect of financial planning and tax management. Periodic review of income, proper estimation of tax liability, and timely payment of taxes can help taxpayers avoid unnecessary interest costs and maintain better control over their finances.


As financial transactions become increasingly transparent and digitally tracked, taxpayers must adopt a proactive approach toward tax compliance. Understanding advance tax obligations and acting on them in a timely manner can prevent last-minute surprises and contribute to sound financial management.


Advance tax is not merely about paying taxes earlier; it is about fulfilling a statutory responsibility while ensuring smooth and efficient tax planning throughout the year.

(The writer is a Chartered Accountant based in Thane. Views personal.)

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