Will your in-hand salary decrease after wage ceiling hike? Know why employers can't recover higher EPF contribution from these employees

From today (September 17, 2026), the Employee Provident Fund (EPF) wage ceiling limit for EPF calculation is enhanced to Rs 25,000 from Rs 15,000 earlier. What does this mean for you? Well, more money will be deposited in the employee’s EPF corpus and EPS (if you are enrolled). But here’s the catch - if you were only contributing based on the old Rs 15,000 limit, you’ll now see a bigger chunk being taken out of your paycheck as EPF contribution.

It is noteworthy that this latest announcement about higher wage ceiling limit of Rs 25,000 is likely to have limited impact on employees who are contributing to EPF on actual wage basis or contributing to EPF on a higher than the old wage ceiling limit of Rs 15,000 or those who already contributes to EPF on a wage ceiling higher than Rs 25,000 at the present. Most likely these employees are someone who had joined the service prior to 2014 and or those employees whose employers deduct EPF contribution on actual wage basis rather than the statutory wage ceiling limit. However, employees, who are contributing to EPF only on the basis of wage ceiling, which is Rs 1800 per month (Rs 15,000 wage ceiling limit), will be impacted most from the wage ceiling increase.

Now, here’s where it gets tricky for employers. The higher cost of the employer EPF contribution is a legal challenge which needs to be clarified by the government. You see, in EPF, 12% of wages is contributed by both the employee and the employer (so a total of 24%). Previously, the statutory wage ceiling limit was Rs 15,000; now it is Rs 25,000. So previously, the employee’s and employer’s contribution both was Rs 1800 each (12% of Rs 15,000), so total of Rs 3600.


This Rs 1,200 extra employee EPF contribution will be deducted from the take-home pay of the employee and deposited in his EPF corpus.

However, the employer’s extra EPF contribution Rs 1,200 (employer contribution) becomes a cost for the employer. Legal experts we spoke with, said the labour code protects employees by preventing employers from passing on this extra EPF contribution cost. Thus, the employer needs to increase the CTC (cost to company) of the employee to factor in the higher employer EPF contribution.

Puneet Gupta, Partner, People Advisory Services-Tax, EY India, said to ET Wealth Online: “Employers may not be able to adjust the additional employer’s contribution to EPF from employees’ salary or CTC. Section 124 of the Code on Social Security, 2020 and Para 21 of the EPF Scheme, 2026 may restrict employers from doing so.”

Thus Gupta says that where the increase in the wage ceiling results in a higher employer EPF contribution, such additional contribution may have to be borne by the employer, but the increase in employee's own EPF contribution may result in a reduction in take-home pay.

Also read: EPF wage ceiling hike: Lesser take home salary for these employees; know how you will be impacted

What is the impact on a Rs 15 lakh salary employee?

Avneet Singh, Associate Partner, Nangia & Co LLP, said to ET Wealth Online that employees who were contributing on the Rs 15,000 statutory wage ceiling limit earlier can now notice a reduction in take-home pay with corresponding increase in EPF corpus

Gupta says that where an employee's EPF contributions are calculated on the new statutory wage ceiling limit of Rs 25,000 or more and contributions are restricted to this statutory ceiling, both the employee's and the employer's contributions may increase from Rs 1,800 per month to Rs 3,000 per month.

Gupta says: “However, only the employee's contribution of Rs 3,000 would be deducted from the employee's salary and (that) may affect the take-home pay.”

Employers also have a choice to insulate their employees from this impact of reduced take home pay. So you need to check with your employer if they are willing to do this for you.

Gupta says: “Where the employer's contribution is borne by the employer, it will not result in a further reduction of the employee's monthly take-home salary.”

A table showing the likely impact on Rs 15 lakh salary (post tax under new tax regime) (wage ceiling limit contribution)

Source: Nangia & Co LLP

Also read: 67% rise in EPS pension for these employees as wage ceiling hike to Rs 25,000 gets cabinet’s approval

Since the labour code protects employees, then why reduce the take-home pay?

Minu Dwivedi, Partner, JSA Advocates & Solicitors, told ET Wealth Online that Section 124 of the Code on Social Security, 2020 (new labour code) restricts an employer from, directly or indirectly, reducing an employee’s wages and also prevents employers from reducing the total quantum of benefits that the employee is contractually or statutorily entitled to receive from the employer as per his/her employment terms.

Dwivedi says this means that the additional employer’s contribution that an employer is required to pay to the statutory EPF fund for employees due to the recent raising of the wage ceiling limit to Rs 25,000, needs to be added by the employer to the current CTC of these employees.

However, this also means that even though the new labour code protects employees from the higher cost of employer EPF contribution, the employee still has to pay his own (employee) EPF contribution, which is now being calculated on the enhanced Rs 25,000 wage ceiling limit. (Assuming the employee previously contributed to EPF on the statutory wage ceiling limit of Rs 15,000)

Tarun Garg, Partner, Deloitte India, explains with an example. For example, employees whose EPF contributions are currently capped at the statutory wage ceiling of Rs 15,000 would see their monthly EPF contribution increase from Rs 1,800 to Rs 3,000. This would result in an additional employee contribution of Rs 1,200 per month, thereby reducing monthly in-hand salary.

However, this reduction in take-home salary should not be viewed as a loss of income, but rather a reallocation of earnings towards long-term savings and social security benefits.

Also read: Will this EPF insurance limit rise to Rs 10.50 lakh after EPF wage ceiling hike to Rs 25,000?

Why does an employee’s CTC need to be increased?

Arvind Baheti, Partner at Khaitan & Co, told ET Wealth Online that since Section 124 of the Social Security Code (new labour code), read with Para 21 of the EPF Scheme, 2026, prevents an employer from restructuring CTC in any manner to offset the increased PF payment on account of the employer’s contribution with any other component of the CTC, the total CTC needs to be increased.

Baheti explains with an example: if the current CTC of an employee is Rs 20 lakh, the increase in the employer contribution by Rs 14,400 per annum (Rs 1200*12) cannot be adjusted against any other component of the CTC with the objective of keeping the old CTC intact. Hence, the CTC will have to be revised to Rs 20,14,400.