The government has recently taken a huge and historic step in the EPFO rules. Under this new change, the basic salary limit for EPFO coverage has now been directly increased to Rs 25,000. The special thing is that this limit also includes Dearness Allowance (DA), whereas earlier this limit was limited to only Rs 15,000. With this important and big decision of the government, about 51 lakh new employees working in the private sector will directly come under the protection ambit of EPFO. With this step, the scope of financial benefits after retirement has increased significantly.
These three big and wonderful benefits are available from EPFO.
EPFO is a very useful and safe retirement scheme for crores of people working in the private sector. It mainly has three big benefits. The first advantage is that when an employee retires after completing his job, he gets the entire money deposited in his EPF account in lump sum. The second big benefit is monthly pension. After retirement, the employee is given regular pension every month under the pension scheme of EPFO, although some necessary conditions have to be fulfilled for this. The third most important benefit is the free life insurance cover available under the Employees Deposit Linked Insurance (EDLI) scheme, which provides financial security to the family.
Understand the complete mathematics of the new Rs 25 thousand limit
According to EPFO rules, 12 percent money is deducted from the basic salary of every employee, which is deposited directly into his EPF account safely. Along with this, it is also mandatory for the company (employer) to contribute 12 percent from its side. But this 12 percent contribution of the company is further divided into two parts. Out of this, 8.33 percent goes to the Employee's Pension Fund (EPS), while the remaining 3.67 percent goes to the employee's PF account.
After the implementation of the new rules, now all those employees whose basic salary is up to Rs 25,000 will also compulsorily come under the purview of EPFO. For example, if a person's basic salary is Rs 25,000, now Rs 3,000 will be deducted from his salary every month at the rate of 12 percent. The company will also have to deposit the same amount compulsorily from its side. Now it has become absolutely necessary for all the companies to follow this new rule.
What will be the direct impact on high salary employees?
Now the biggest question that arises is that what effect will this new rule have on those employees whose basic salary is Rs 40,000 or Rs 50,000? According to experts, there are many companies which already deduct PF amount on the basis of the employee's actual i.e. full basic salary. This can be understood with an easy example. Suppose your basic salary is Rs 40,000 and if your company is already implementing the rule of 12 percent on the entire basic, then there will be no bad impact on your net salary. 12 percent of your salary of Rs 40,000 i.e. Rs 6,000 will be deposited in your account and the company will also contribute Rs 6,000 from its side, out of which 8.33 percent will go to the pension fund. With this, all your retirement benefits will remain as safe as before.
The biggest change will be seen on take home salary
If your company decides that it will strictly adhere to the new wage limit of Rs 25,000 only, then your in-hand salary will be directly impacted. In this situation, only Rs 3,000 will be deducted from your salary in the name of PF and the company will also contribute only Rs 3,000 from its side. If this happens, the net salary coming into your bank account every month may decrease slightly compared to before.
The mathematics behind this is very easy to understand. Under the old rule, companies used to deduct your money only at a maximum limit of Rs 15,000, due to which less PF was deducted and more money came into hand. Now that the limit has increased to Rs 25,000, the deduction of PF has increased. This will also be fully applicable to employees getting a basic salary of Rs 50,000, because despite the basic salary being Rs 50,000, the company can use only a maximum limit of Rs 25,000 for PF contribution.