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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

Betraying the Ballot

Writer: Rahul Gokhale
Rahul Gokhale
Jun 23
4 min read

 The recent split within the Uddhav Thackeray-led Shiv Sena marks a critical turning point in Maharashtra politics. With six rebel Members of Parliament (MPs) set to merge into the Eknath Shinde-led faction, the Shinde group’s Lok Sabha strength will rise to 13. While the BJP holds nine MPs, this shift significantly enhances the Shinde faction's independent political clout. Although the BJP maintains undisputed dominance in the State Legislative Assembly, these altering equations at the Centre could create a tight spot for the party locally. Yet, this regional fallout is part of a broader, more alarming trend. Defection is neither new nor rare in India, but the rapid, successive splits witnessed across multiple regional parties over the past few months strike at the very core of the nation’s political culture.


Regional Parties Targeted

This wave of fragmentation highlights a systematic targeting of regional forces. In April, seven Rajya Sabha MPs from the Aam Aadmi Party (AAP) formed a separate faction before merging into the BJP. Following a crushing defeat in the May West Bengal Assembly elections, the Trinamool Congress (TMC) was struck by a wave of defections as 60 MLAs broke away. This trend quickly spread to Delhi, where 20 TMC MPs formed a separate faction, ultimately aligning with the BJP via the Nationalist Citizens Party of India. Now, with the Shiv Sena splintering and leaders like Deputy Chief Minister Om Prakash Rajbhar predicting an impending split within Uttar Pradesh's Samajwadi Party (SP), a clear pattern emerges: the affected entities are all regional parties serving as the principal opposition to the BJP in their respective states. Consequently, weakening these regional strongholds appears to be a primary strategic objective for the ruling dispensation, serving a larger national agenda to consolidate power at the Centre.


While the leadership failures of figures like Arvind Kejriwal, Mamata Banerjee, and Uddhav Thackeray undoubtedly fractured their respective parties, reducing these splits to mere ‘leadership style’ oversimplifies a structural phenomenon. Maintaining cohesion is always a litmus test for leadership, but these rifts spiked precisely while these parties were out of power, mirroring the Shiv Sena split during the Maha Vikas Aghadi’s stint in the opposition. Rather than attributing these shifts strictly to internal friction, these fractures must be analysed through three systemic lenses: the BJP’s aggressive legislative ambitions, the erosion of ideological commitment within regional parties, and the structural failure of the Anti-Defection Law.


Aggressive Manoeuvring

First, the BJP’s aggressive manoeuvring appears driven by a desire to secure the parliamentary numbers required for major constitutional amendments. Previously, a unified opposition bloc left the government short of the two-thirds majority needed to pass landmark structural reforms, such as the constituency-redrawing delimitation bill. Contentious initiatives like ‘One Nation, One Election’ remain stalled by this high legislative threshold. Following the political fallout in Tamil Nadu, where the DMK exited the I.N.D.I.A. bloc after Congress backed a TVK government, the BJP aims to engineer a highly favourable political arithmetic by absorbing dissident factions from the TMC, Shiv Sena, and potentially the SP, or even co-opting the entire DMK bloc.


This raises vital questions: Is the ruling party rushing to push through critical legislation out of fear that it won’t secure an absolute majority in future Lok Sabha elections? Manufacturing a majority through engineered splits and artificial alliances undermines the democratic mandate.


These wholesale defections signal a dangerous decline in ideological commitment. Unlike historic pre-election coalitions like the Janata Party, the national Democratic Alliance (NDA), or the United Progressive Alliance (UPA), which were bound by ‘Common Minimum Programme,’ today’s defectors abandon their principles post-election under the vague pretext of ‘development’ simply to align with the ruling party. A healthy democracy requires rival parties to offer distinct visions for the nation, competing on structural policies rather than infrastructure alone. When TMC or AAP dissidents overnight join or align with the very BJP they campaigned against, genuine ideological debate vanishes, sacrificing long-term democratic health for short-term political opportunism.


Longstanding Deficiencies

This crisis exposes the longstanding inadequacies of India’s Anti-Defection Law and the broader challenge of preserving political morality in a parliamentary democracy. The problem of defections is not new. The phenomenon became synonymous with the phrase ‘Aaya Ram, Gaya Ram,’ coined after Haryana legislator Gaya Lal reportedly changed political allegiance multiple times within a single day. As early as 1967, a committee chaired by Y. B. Chavan thoroughly examined the defection issue and submitted its report to Parliament in 1969. The report revealed that as many as 438 instances of defection had occurred in a single year alone; furthermore, out of 210 defections across just seven states in North India, 116 defectors were rewarded with ministerial positions. Subsequently, constitutional amendment bills were introduced in 1973 and 1978 to enact anti-defection laws, but they failed to materialize into law.


Legislative action came only years later through the 52nd Constitutional Amendment Act of 1985, which inserted the Tenth Schedule into the Constitution. The law sought to establish legal guardrails against political defections by disqualifying legislators who voluntarily gave up membership of their political party or violated the party whip on crucial votes. However, the original framework contained a significant loophole by permitting splits involving one-third of a party’s legislators. To address this weakness, the 91st Constitutional Amendment Act of 2003 raised the threshold to two-thirds of a party’s legislative strength.


The contemporary political landscape demonstrates that these reforms have not fully achieved their objective. Rather than preventing defections, the law has incentivized politicians to engineer large-scale defections that satisfy the two-thirds requirement and therefore remain legally protected. Individual acts of party-switching have increasingly been replaced by wholesale defections. Constitutional safeguards intended to preserve political stability have often become tools for legitimizing political opportunism.


To restore the integrity of India’s parliamentary democracy, the anti-defection law must be reoriented to protect the mandate of the electorate rather than merely regulate legislative arithmetic.


While prudent political leadership must take the initiative to close these structural vulnerabilities, the ultimate safeguard lies with the people. If the state fails to reform itself, a vigilant and mature electorate must use the power of the vote to deliver a swift, punishing response to political opportunism.


(The writer is a political commentator. Views personal.)

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