Your take-home salary may have reduced this month following a reported change in the wage ceiling used for Provident Fund (PF) calculations. The Centre is said to have increased the wage limit from Rs 15,000 to Rs 25,000, with the revised provision taking effect from September 17.
Under the earlier calculation, the maximum monthly employee contribution towards PF was Rs 1,800. With the wage ceiling raised to Rs 25,000, the monthly deduction has increased to Rs 3,000, meaning employees could receive around Rs 1,200 less in their take-home salary.
However, the higher deduction also means a larger contribution towards employees’ retirement savings. The employer is also required to make a higher contribution towards the employee’s PF and pension accounts. As a result, the combined monthly amount going into the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) increases.
How Has The PF Deduction Changed?
Under the earlier wage ceiling of Rs 15,000, an employee’s contribution was calculated at 12 per cent, subject to a maximum deduction of Rs 1,800 per month.
With the revised ceiling of Rs 25,000, the employee contribution at the same rate rises to Rs 3,000 per month.
The employer’s contribution also increases from Rs 1,800 to Rs 3,000. This takes the combined monthly contribution from Rs 3,600 to Rs 6,000.
Of the employer’s 12 per cent contribution on the revised wage ceiling, 8.33 per cent goes towards the pension account under EPS, while the remaining 3.67 per cent is deposited in the EPF account.
Accordingly, the employer’s monthly contribution of Rs 3,000 is divided as follows:
EPF contribution (3.67 per cent): Rs 917.50
EPS contribution (8.33 per cent): Rs 2,082.50
Earlier, the maximum amount credited to the pension account was Rs 1,250 per month, calculated at 8.33 per cent of the Rs 15,000 wage ceiling. Under the revised calculation, this amount rises to approximately Rs 2,083.
How Will The Higher PF Contribution Benefit Employees?
Although employees may see a reduction in their monthly take-home pay, the higher contribution is expected to increase their retirement savings.
Under the revised calculation, an additional Rs 1,200 would be deducted from the employee’s salary, while the employer would contribute another Rs 1,200 over and above its earlier contribution.
This means an additional Rs 2,400 would be credited towards the employee’s retirement savings every month, comprising the increased employee and employer contributions.
The accumulated EPF balance also earns compound interest at the rate declared by the Employees’ Provident Fund Organisation (EPFO). Over the years, the higher monthly contributions could therefore help employees build a larger retirement corpus.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: abplive.com
