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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

Tax Relief, but Tighter Compliance

Writer: Sayli Gadakh
Sayli Gadakh
Apr 7
3 min read

From FY 2026–27, taxpayers may benefit from higher rebates and revised exemptions, but they will also need to be more careful with documentation.

From 1 April 2026 (FY 2026–27), India’s direct tax system will move into a new phase with the enforcement of the Income-tax Act, 2025 and the Income-tax Rules, 2026. From a chartered accountant’s perspective, the intent behind these changes is clear: to make tax laws easier to understand, reduce procedural complexity, and improve compliance. For the common taxpayer — especially salaried individuals — the new framework is expected to bring greater clarity, a more streamlined filing process, and a rationalisation of tax benefits that could have a direct impact on take-home income and tax planning.

 

One of the most important structural changes is the introduction of a single “tax year”, which replaces the earlier distinction between the financial year (FY) and the assessment year (AY). From a practical standpoint, this is expected to remove confusion, reduce interpretational issues, and make compliance smoother, particularly in return filing and assessment-related procedures.


Allowance Relief

Another notable change under the old tax regime is the significant upward revision in several allowance limits. The Children Education Allowance has been increased to Rs 3,000 per month per child, subject to a maximum of two children, compared with the earlier Rs 100. Likewise, the Hostel Expenditure Allowance now stands at Rs 9,000 per month per child, up from Rs 300. The tax-exempt limit for employer-provided meal vouchers has also been raised to Rs 200 per meal, while the exemption for non-cash gifts has been enhanced to Rs 15,000 per annum.

 

Further, the threshold for taxing interest-free or concessional loans provided by employers has been raised substantially from Rs 20,000 to Rs 200,000, easing the tax burden on employees who avail of such benefits. The transport allowance for employees in the transport sector has also been increased to Rs 25,000 per month. In addition, higher conveyance allowance limits have been prescribed for differently-abled employees, with separate slabs for metro and non-metro areas.

 

In the case of House Rent Allowance (HRA), a particularly important change is the extension of the 50% salary-based exemption to more urban centres, including Bengaluru, Pune, Hyderabad and Ahmedabad. This is a welcome move for salaried employees in these cities, where rental costs are relatively high. At the same time, the benefit now comes with tighter reporting norms, such as mandatory disclosure of the landlord’s PAN and a declaration of the relationship between the employee and the landlord. These additional requirements are clearly aimed at strengthening audit trails and curbing the scope for misuse.


Rebate Benefit

It is important to note that the income tax slab rates remain unchanged, with the new tax regime continuing as the default option. However, the increase in the rebate under Section 87A to Rs 60,000 effectively makes income up to Rs 12 lakh tax-free under the new regime. For salaried taxpayers, this limit rises to Rs 12.75 lakh after factoring in the standard deduction of Rs 75,000 available under the new regime. Under the old regime, the standard deduction remains at Rs 50,000.


Compliance Changes

From a compliance standpoint, the new tax framework also brings in a few important procedural changes. Form 16 and Form 16A have now been replaced by Form 130 and Form 131, respectively, in line with the revised reporting structure. At the same time, the discontinuation of Aadhaar-only PAN applications, along with the introduction of Form 93, points to a shift towards more structured and category-specific documentation requirements.


The new framework also carries several other amendments, including changes in provisions relating to Tax Collected at Source (TCS), Securities Transaction Tax (STT), and the taxation of certain transactions such as share buybacks. Broadly, these measures appear aimed at widening the tax base while also improving transparency, reporting, and overall accountability in the system.

 

Overall, the tax reforms coming into effect from April 2026 reflect an attempt to strike a balance between simplification and tighter compliance. On the one hand, the rationalisation of allowances and the higher rebate offer clear relief to taxpayers. On the other, stricter documentation and reporting requirements make it equally clear that the government is seeking to strengthen transparency and the overall integrity of the tax system. From a chartered accountant’s perspective, the new framework should bring greater clarity in interpretation, while also calling for more careful compliance and more informed tax planning and advisory support.


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

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