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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

Retirement - Your Biggest Festival

Writer: Kaustubh Kale
Kaustubh Kale
Oct 25, 2025
2 min read

During the recent festive season - Navratri, Dussehra, and Diwali - you must have noticed how expenses tend to surge during these times. Expenses do rise significantly during festivals and vacations. Similarly, retirement, often viewed as the grandest festival and vacation of your life, can bring higher financial demands due to increased free time and completing your wishlist. This is why proper retirement planning is crucial. If not planned properly, you would have to significantly tone down your standard of living, after retirement.


When should you start planning for retirement?

The simple answer is: as early as possible. Ideally, retirement planning should start the moment you begin earning.


Let us say that you start working at the age of 25. Your employer is giving you a salary. You plan to work till the age of 55 (for 30 years). Is your salary only for these 30 years? That is not the case. When you are working for 30 years, your employer is paying salary not only for your 30 working years but also for the years that you will stay alive after retirement. It is not only for the expenses from age of 25 to 55 but also for the expenses from age 55 to 85 years (assuming life expectancy).


The power of compounding

Many youngsters delay retirement planning, assuming they have time, but starting early allows you to maximise power of compounding - where the majority of benefits are back-ended in nature. For example, if you consider a Systematic Investment Plan (SIP) in equity or hybrid mutual funds, the longer your money stays invested, the more it grows. The earlier you start, the smaller the monthly investment required to achieve a large corpus at retirement. The more you delay, the harder it gets.


Advisor zaroori hai

Firstly, take help of an expert - a financial advisor. Wealth creation and achieving financial goals is not a do-it-yourself activity. It is sensitive and complicated - the cost of doing nothing and going wrong is massive!


Parameters for retirement planning calculation

Here are key parameters to consider when calculating your retirement needs:

·  Current Age

·  Target Retirement Age

·  Current Monthly Expenses

·  Inflation Rate

·  Life Expectancy


For example, if you are 30 today, planning to retire at 55 with an assumed life expectancy of 85, and your current monthly expense is 50,000, inflation (around 6 per cent) would push your retirement fund requirement to 7 crores. A monthly SIP of 45,000 in equity or hybrid mutual funds can help you reach this goal over 25 years. The later you start, higher your monthly expenses and sooner you wish to retire - all 3 parameters would increase your retirement corpus requirement.


Start now

Achieving financial freedom isn’t difficult, but it requires discipline. If you haven’t started yet, the next best time to begin is now.


(The author is a Chartered Accountant and CFA (USA). Financial Advisor.  Views personal. He could be reached on 9833133605.)

 

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