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Government may raise EPFO wage ceiling to 21,000, allowing you to retire with 1 crore: Report

Sep 21, 2024 04:20 PM IST

The current wage ceiling of ₹15,000 (Which used to be ₹6,500 in 2014) for employees’ contribution may get raised for investing more into the EPFO corpus

The government is looking to raise the limit on contributions made by subscribers to the Employees’ Provident Fund Organisation (EPFO) as well as the Employees’ Pension Scheme (EPS) according to a Financial Express report which cited Union Labour Minister Mansukh Mandaviya.

Both the employee and the employer contribute 12% of the employee's salary each if the employee earns <span class='webrupee'>₹</span>15,000 or less each month currently.(HT Photo)
Both the employee and the employer contribute 12% of the employee's salary each if the employee earns 15,000 or less each month currently.(HT Photo)

The current wage ceiling of 15,000 (Which used to be 6,500 in 2014) for employees’ contribution may get raised for them to invest more into their EPF corpus, according to the report.

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How do EPFO contributions work?

Both the employee and the employer contribute 12% of the employee's salary each if the employee earns 15,000 or less each month.

However, the employer’s contribution is divided into two parts. 8.33% is allocated to the Employee Pension Scheme (EPS) while the remaining 3.67% goes to the provident fund.

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So if the salary is 15,000 a month, the employee's provident fund contribution will be 1,800. The employer's provident fund contribution will be 550.50 and EPS contribution will be 1,249.5.

What may be the new EPFO contribution limit?

The government may consider raising the wage ceiling to 21,000, Financial Express reported, citing unidentified sources.

If that happens, then with a salary of 21,000, the employee will contribute 2,520 and the employer will contribute 770.70 to the EPFO and 1,749.30 to EPS.

How much can the revised wage ceiling increase the EPFO interest amount?

An employee joining the EPFO scheme at the age of 23 to contribute to the fund for 35 years with a basic pay of 15,000 will get a total corpus of 71.55 lakh, with the compounded interest amount alone being 60.84 lakh from the total contribution of 10.71 lakh at an 8.25% interest rate per annum.

If the limit is hiked to 21,000, the total corpus would reach 1 crore, with an invested amount of 15 lakh and interest amount of 85 lakh, meaning the employee can earn an extra 28.45 lakh if the salary is 21,000 and the hike also happens.

What is the EPFO withdrawal limit?

The EPFO withdrawal limit has also been increased from 50,000 currently to 1 lakh, with the report quoting Mandaviya as saying that the withdrawal limit has been raised especially if there is some family emergency and money must be withdrawn.

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