How Does the 2014 Budget's PF Limit Increase Affect Your Paycheck and Costs?

Implications of the Union Budget 2014 on PF Contributions

The union budget 2014 has increased the PF limit from ₹6,500 to ₹15,000. What will be the implications for employers and employees in the following scenarios?

1. Currently, the basic pay is ₹6,500, and the PF contribution/deduction is on ₹6,500. Will the contribution remain the same?

2. Currently, the basic pay is ₹6,500, and the special allowance is ₹1,000. Will the PF contribution/deduction increase to 12% of ₹7,500?

3. Currently, the basic pay is 40% of CTC, so some employees' basic pay is, say, ₹40,000. Currently, PF is only on ₹6,500. Would it now increase to 12% of ₹15,000? This would mean less amount in the hands of employees (as the company works on a CTC basis). And when the company does not fix the salary on CTC, it would mean an increase in employment cost for the employer to that extent.

Requesting experts to please confirm. Thanks in advance.

As per your questions:

1. If the limit exceeds 6,500 to 15,000, it means that those whose basic + DA is more than 6,500 have the option to choose registration. Now, for those whose basic + DA is more than 15,000, it will be optional.

2. If the basic + DA is less than 6,500, then they are mandatory for PF registration in the current scenario. If the basic + DA is less than 15,000, then they are mandatory for PF contribution.

Please let me know if you need further clarification or information.

You have very well explained the coverage under EPF. However, you have not explained how the PF will be deducted. Most organizations now deduct PF up to Rs. 6,500. This means that even if your basic is Rs. 25,000, PF is deducted only on Rs. 6,500, and A/c 10 (Pension fund) is limited to Rs. 541. With the recent increase in the limit, what will be the pension fund amount? Will it be more or the same?

Regards,
Dinesh Kumar

Hi Dinesh, For a 6500 EPS account, the limit is calculated as 6500 * 8.33% = 541. Then for 15000, it's 15000 * 8.33% = 1249.

Understanding PF Deduction Limits

If your salary is Rs. 14,000, will the PF be deducted on the entire basic amount, i.e., 14,000 * 12%, or will it be limited to Rs. 6,500? I mean to say that, as in the Bonus Act, the coverage limit is Rs. 10,000, but the bonus is computed on Rs. 3,500. Similarly, in EPF coverage, the limit will be Rs. 15,000, but will the contribution be limited to Rs. 6,500? Will the employer be liable to pay over Rs. 6,500?

Thanks & Regards,
Dinesh Kumar

The employer will limit to ₹6500/- only, but employees can contribute above the ceiling. The benefit of increasing the ceiling is that more employees will be covered under this act, and they can avail themselves of the benefit. Before we discuss this further, it's better to wait until the notification is passed.

PF Contribution on Basic + DA

The PF is deducted on Basic + DA and not on CTC or other components of salary. Now, the mandatory PF contribution has increased to ₹15,000. Even if the Basic + DA is more than the limit of ₹15,000, the employer has to deduct PF contribution for ₹15,000. Employees' take-home pay will be reduced to that extent, and the employer has to contribute more to PF. For employees, it is beneficial because a higher amount is saved in the PF account.

Regards,
Moorthi

EPFO Notification on EPF Wage Limit Increase

We should wait for the EPFO notification regarding the recent EPF wage limit increase (Rs. 15,000/-) to address the query/doubt suitably.

Regards,
Anil Sharma

Impact of Increased PF Ceiling on Employers and Employees

The increase in the PF ceiling is an additional burden to the employer. Employees benefit from it.

Regards,
Pon

As advised by Anil Sharma, please wait for the publication/gazettification of the EP ceiling. In the meantime, people are expressing relevant/irrelevant issues, thereby confusing site viewers. Let us wait, or if somebody has a notification, please publish it for the benefit of all.

It's not fair to indicate any suggestive calculations at present; we should await the formal notification. All we can be sure of is that the burden on employers due to these developments is going to be substantial, and take-home pay will be less, though it's going to be an investment for the future for employees. Millions of new subscribers will be enrolled in EPF and Pension funds. Firms providing retiral benefits will have more business.

Regards.

Dear All HR Fraternity,

Please find attached the latest circular dated 14 July 2014 issued by EPFO (Ministry of Labour, Government of India), New Delhi, regarding the enhancement of the statutory wage ceiling to Rs. 15,000 from the existing Rs. 6,500 under the Employees Provident Fund & Miscellaneous Provisions Act, 1952.

Kindly review the aforementioned circular and prepare for the necessary course of action accordingly.

Thank you,
Anil Sharma

EPF Membership Eligibility and Ceiling Amount

The circular does not mention anything about the ceiling amount of Rs. 6500/-. It simply states that previously, people drawing up to Rs. 6500/- per month were eligible to become members of the EPF. Now, employees/workers drawing Rs. 6500/- to 15000/- per month are also included in the EPF ambit.

If the ceiling is lifted, we will have to contribute more by reducing our take-home wage, which will also impose an additional burden on the establishments.

I have a query regarding the applicability of the new PF. Will the CTC increase from the July salary or the August salary?

Understanding the Significance of Form No. 11

I want to know the significance of Form No. 11, which has been filled out by the employees. If I do not want PF, what procedure should I follow?

Regards

I need clarification on whether, if the basic salary is said to be ₹50,000/-, the employer would be required to deduct PF on ₹50,000/- or on ₹6,500/- presently, or ₹15,000/- after the amendment. I understand that if the limit is ₹6,500/-, an employee can request to have PF deducted only on ₹6,500/- and not on ₹50,000/-. Is this correct?

Due to the enhancement of the wage limit to Rs. 15,000, the maximum pension contribution will be Rs. 1,250.

Regards,
AJIT DESAI
Management Consultant
HR & Labour Laws

Impact of Increased PF Limit on Employers and Employees

1. Some employers limit their contribution to the PF limit. So, an increase in the PF limit will raise employers' costs.

2. Employers will include this additional cost in the CTC of the employee. To what extent will the employee's CTC be reduced?

3. The only benefit is that the employee's PF savings will increase along with the interest on it.

Further queries on this are invited. Please let me know if you have any questions.

I need clarification on whether, if the basic salary is ₹50,000/-, the employer would need to deduct PF on ₹50,000/- or on ₹6,500/- currently, or ₹15,000/- after the amendment. I understand that if the limit is ₹6,500/-, an employee can request to have PF deducted only on ₹6,500/- and not on ₹50,000/-. Is this correct?

Lots of queries are bound to arise in everyone's mind, but like you, we also keep guessing until the notification in black & white is out. Hence, all these now remain nothing but hunches, predictions, and wishes.