Higher EPF wage ceiling expands social security for millions; but EPS legacy issues need to be fixed

The government recently hiked the wage ceiling for the Employees’ Provident Fund (EPF) from Rs.15,000 to Rs.25,000 per month. This expands social security coverage to millions of salaried individuals. But even as more employees can expect to build a dedicated nest egg they can depend on after retirement, they must also grapple with the malaise accompanying it.

Enhancing social security

This is seen as a long-overdue revision of social security coverage that had been anchored at a single figure since 2014. Under the earlier ceiling, any new employee joining with a monthly wage over Rs.15,000 was excluded from EPF coverage. With the ceiling now hiked, mandatory EPF contributions will correspondingly apply to wages up to Rs.25,000 per month instead of Rs.15,000. This will bring more workers under the social security blanket. So anyone earning a basic salary of, say, Rs.22,000 will now get covered by EPFO.

It will also take monthly EPF contributions for existing members (who earn up to Rs.25,000) up from Rs.1,800 to Rs.3,000 (12% of Rs.25,000). Additionally, the employer’s share will rise from Rs.550 to Rs.917 (3.67% of Rs.25,000), bringing the monthly EPF contribution to Rs.3,917.


ALSO READ | EPF wage ceiling hike: How it impacts employee & employer's contributions to EPF, EPS and take-home pay

The retirement fund body has clarified that employers cannot shift their added burden to employees by simply showing the amount as part of the cost to company (CTC) and recovering it from salaries. So employees will see lower take-home pay only to the extent of their own excess PF contribution. The employer’s contribution will not further dent their take-home pay.

Puneet Gupta, Partner, People Advisory Services-Tax, EY India, asserts, “The increase in the EPF wage ceiling from Rs.15,000 to Rs.25,000 is a significant move that expands the scope and quantum of social security benefits available to employees. The decision reflects the need to align social security thresholds with current wage levels and inflationary trends.”

Kunal Kabra, Founder of Kustodian. life, says this safeguards the needs of a growing retirement population. “As a country, we are at our peak right now, with the largest youth population in the world. But that also means that within the next two decades, we will have one of the largest retiree populations, and without the right guardrails in place, it could be a financial pandemic in waiting.”

Notes: • Employer’s 12% is split: 8.33% (capped at Rs.2,083) goes to EPS; the remaining amount goes to the employer share of PF. • Illustrative monthly figures. EDLI and admin charges not shown. Ceiling notified by the Ministry of Labour & Employment, effective 17 Sep 2026. Those who joined the workforce after September 2014 and draw a basic pay of over Rs.25,000 do not need to contribute to EPS.

Source: Finright

Pill with a side-effect

But this bigger social security coverage comes with some trade-offs. The wage ceiling serves as the threshold for mandatory contributions not just to the EPF, but also to its affiliated social security programs: the Employees’ Pension Scheme (EPS) and Employees’ Deposit-Linked Insurance (EDLI). With the upward revision in the EPF wage ceiling, more subscribers will now get swept into the EPS fold as well. EPS administers the pension component payable to eligible EPFO members. For eligible employees, 8.33% of the employer’s contribution is mandatorily diverted towards the EPS, subject to the wage ceiling. You are eligible for a pension at age 58 if you complete 10 years of contributory service.

Here is how EPS contributions will change at different salaries: For anyone earning up to Rs.25,000 a month, the employer will now contribute Rs.2,083 (8.3% of 25,000) to EPS, compared with Rs.1,250 earlier (8.3% of 15,000). The pension buildup rises by Rs.833.

People drawing basic salary between Rs.15,000 and Rs.25,000 were contributing only to EPF till now. These will now become EPS members. So, anyone drawing a basic salary of Rs.20,000 was earlier contributing Rs.2,400 (12% of 20,000) towards EPF, with matching contribution by the employer. Now, the employee’s contribution will remain unchanged at Rs.2,400, but Rs.1,666 of the employer’s contribution (8.33% of 20,000) will be diverted to the EPS, and Rs.734 (2,400 - 1,666) will flow into the EPF. They will remain part of EPS even when their basic salary increases beyond Rs.25,000.

Ketan Das, Manager-Operations & Strategy, Finright Technologies, observes, “The biggest takeaway is that now anyone with a CTC up to Rs.6 lakh will be forced to be part of EPS. A large part of India’s salaried base who will start their employment in the coming years will have their CTC less than Rs.6 lakh; as a result, they will be part of EPS even when their CTC increases beyond Rs.6 lakh.” Only those with basic salary exceeding Rs.25,000 (at the time of joining) will be kept out of the EPS. Their entire contribution on wages up to Rs.25,000 will go towards EPF.

ALSO READ | EPF wage ceiling history: How ₹300 became ₹25,000 and what it means for your salary

Now, coming under pension coverage is normally a good thing. Only, EPS has now become a minefield for many EPFO members. Many of the EPF claims-related woes stem from errors within the EPS. Higher or lower EPS contributions than what you are eligible for, or skipped contributions by the employer, are common issues. A wrong joining or exit date by a past employer often creates an overlap or gap in service records. If you leave these errors unchecked, you may not only be frozen out of your pension, but they may also scuttle your future EPF payout. Non-transfer of EPS ac counts when shifting jobs can also derail any final EPF withdrawal. Besides, EPS-related administrative lapses such as non-receipt of higher pension benefits, non-release of pension arrears or erroneous calculation of pension affect many EPFO members.

In such circumstances, getting absorbed into the EPS or having larger sums diverted into this bucket may become an unwanted burden for many. “All legacy issues in EPS still persist. Given the state of affairs, forcing a large set of salaried Indians into the EPS scheme will only add to the chaos,” reckons Das. He points to the difficulty in EPF withdrawal claims if issues in EPS remain unresolved. As per revised withdrawal rules, members can withdraw up to 75% of their EPF corpus (including employee and employer share) in the event of a job loss. The waiting period to claim the remaining amount is 12 months. But if there are errors in the EPS records, you can only withdraw 75% of the employee’s share. The remaining amount is locked till you fix the issues, observes Das. Further, exiting EPS is also not easy. Members who have not completed 10 years of service now face a 36-month wait to withdraw EPS lump sum, compared to two months earlier.

Besides, money diverted into the EPS earns no interest. Members who earlier contributed only to EPF will now have less money compounding at the EPF interest rate, as a portion will be diverted to EPS after the wage-ceiling revision. Also, the corresponding monthly pension under EPS at the age of 58 won’t be much if accounting for inflation.

Fix needed

Gupta acknowledges that wider social security coverage underscores the need to strengthen the EPS ecosystem. “Issues relating to pension adequacy, higher pension implementation, claim processing and administrative efficiency have already been subjects of extensive debate.” As membership expands, stakeholders will expect better administration and service delivery to ensure wider coverage translates into meaningful social security benefits for employees.

Kabra feels the onus is on employees to keep their EPS records spotless. “It is the mistakes made while contributing to EPS that cause these gaps. The scheme is a bit confusing, but a little attention from the employee is enough to make sure they never face the brunt of it.” Strangely, the new wage-ceiling rules take effect on 17 September—midway through last month. This sudden implementation can create problems, feels Kabra. “Things like the next day being the effective date, or a mid-month implementation, have created chaos that was completely avoidable,” he says.