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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

India’s Dilemma: The Specter of a Three-and-a-Half-Front War

Jan 1, 2025
4 min read

Updated: Jan 2, 2025

In the first of a two-part series, we examine India’s growing security challenges, both internal and external, and the strategic steps needed to navigate these complexities

India’s Dilemma

The world is a powder keg. Unrest in Iran, Iraq, Israel, Syria, and across the Middle East coincides with the protracted war between Russia and Ukraine. These crises ripple across borders, leaving no country untouched. For India, the stakes are particularly high. In Asia, tensions with Bangladesh and Pakistan, coupled with an unresolved standoff with China, exacerbate an already precarious security environment. Adding fuel to the fire, domestic challenges further intensify the risks, raising the alarming possibility of what strategists dub a “three-and-a-half-front war.”


India’s geographical location offers both an advantage and a disadvantage. Strategically positioned as a hub for global logistics, the country is critical to ensuring regional stability. Yet, its proximity to two longstanding adversaries—China and Pakistan—complicates matters. Bangladesh, with its shifting allegiances, has added a new dimension to this calculus. The volatile domestic situation, marked by communal and political unrest, completes the trifecta, with internal challenges forming the “half front” in this ominous scenario.


Indo-China relations have long tested India’s diplomatic mettle. For decades, China has pursued a strategy to keep India on edge, using a mix of psychological and military provocations. Rooted in its desire to avenge the ‘Century of Humiliation,’ China’s worldview is deeply shaped by a need to dominate its regional neighbours.


India’s rapid ascent on the global stage poses a direct challenge to China’s ambitions of regional and global supremacy. Beijing views New Delhi’s rising stature with unease, particularly its growing influence in the Indo-Pacific, its robust infrastructure along contested borders and its leadership in multilateral forums like the Quadrilateral Dialogue (QUAD). The refusal to join initiatives like the Belt and Road Initiative (BRI) and the Regional Comprehensive Economic Partnership (RCEP) has further strained ties.


The 2020 Galwan Valley clash, a tragic flashpoint in Indo-China relations, epitomized China’s aggressive designs. Beijing’s displeasure with India’s border infrastructure development and its closer ties with Western allies has only fuelled its belligerence. Militarily, China holds the upper hand, leveraging its advanced arsenal against India’s aging defence systems. This disparity emboldens Beijing to test India’s resolve repeatedly, creating a perpetual state of tension.


Beyond its direct provocations, China’s deepening ties with South Asia complicate India’s security calculus. Bangladesh, once a trusted ally, now edges closer to Beijing. Economic investments through the Belt and Road Initiative, strategic military partnerships, and increased political engagement hint at a significant shift in Dhaka’s priorities. While India continues to invest in its ties with Bangladesh, the growing influence of China in the region presents challenges that are impossible to ignore.


Since Partition in 1947, India and Pakistan have shared an acrimonious relationship. Pakistan’s grievances, from the creation of Bangladesh to its inability to annex Kashmir, have defined its hostile posture toward India. While India’s economic growth and diplomatic successes have widened the gulf, Pakistan continues to rely on asymmetric warfare through state-sponsored terrorism.


India has responded firmly with cross-LoC strikes and diplomatic efforts like pushing Pakistan onto the FATF grey list. However, Islamabad’s deepening ties with Beijing, including advanced weapon supplies, have strengthened its military, forging a troubling China-Pakistan nexus. This partnership, with potential strategic collaboration in Siachen and Ladakh, poses a serious challenge to India, raising concerns of a coordinated assault from both adversaries.


Bangladesh, once a close ally, now emerges as a wildcard in India’s security landscape. While the two countries share historical ties rooted in India’s role during Bangladesh’s liberation, recent developments suggest a drift. Dhaka’s growing economic partnership with Beijing and its reluctance to fully endorse India’s regional leadership underscore this shift.


China’s significant investments in Bangladesh’s infrastructure, ranging from ports to power plants, mirror its strategy in other South Asian countries. For India, this growing influence represents not just an economic challenge but a strategic one. The possibility of Bangladesh aligning with China in regional disputes adds another layer to India’s external threats.


The Domestic ‘Half Front’

India’s security challenges are compounded by internal issues like communal tensions, political polarization, and insurgencies in Kashmir and the Northeast, which strain resources and create exploitable vulnerabilities. Kashmir remains a flashpoint, with unrest offering Pakistan opportunities to stoke proxies, while Northeast insurgencies require constant vigilance. To counter the threat of a coordinated three-front assault, India must recalibrate its security policy with investments in defence modernization, strong alliances, and diplomatic finesse.


Modernizing the armed forces, with a focus on indigenization and reducing dependence on foreign suppliers, is imperative. Simultaneously, India must strengthen its regional partnerships, leveraging platforms like the QUAD and the Indian Ocean Rim Association to counterbalance China’s influence. Engaging with Bangladesh to rebuild trust and counter Beijing’s narrative will be equally crucial.


A united and resilient nation is less susceptible to external manipulation, ensuring that the ‘half front’ does not become a full-blown crisis. The challenges are formidable, but so too is India’s resolve.


(The author is a retired Indian Naval Aviation Officer and a geo-political analyst.


(In Part Two tomorrow, we focus on Bangladesh’s potential to emerge as a third front in the conflict, explore how India’s domestic situation constitutes a ‘half front’ and examine key remedial measures India must adopt to mitigate the threat)

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