Social security net widens: Govt nod for raising EPFO wage ceiling to Rs 25,000, Pg5

Key Highlights:

• The Union Cabinet approved raising the wage ceiling for Employees’ Provident Fund Organisation (EPFO) subscribers.
• The wage ceiling has been increased from Rs 15,000 to Rs 25,000 per month, a revision after 12 years.
• The hike is effective from Thursday and is expected to bring an additional 51 lakh employees under EPFO coverage.
• The monthly pension contribution under the Employees’ Pension Scheme (EPS) will now be capped at Rs 2,080.
• The government's annual budgetary support for pension contributions will increase by Rs 1,089 crore.

Detailed Insights:

• The revision aims to incentivize social security and formal employment across the country.
• Both employees and employers contribute 12% of the employee’s basic salary, dearness allowance, and retaining allowance to the EPF.
• The employer's 12% contribution is split, with 3.67% going to EPF and 8.33% to EPS.
• The government also contributes 1.16% to the EPS for eligible employees.
• The total annual government outgo for pension contributions will rise to approximately Rs 11,339 crore.
• The increase expands access to provident fund savings, pension protection under EPS, and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI).
• The last EPFO wage ceiling hike occurred in September 2014, raising it from Rs 6,500 to Rs 15,000.
• This move reflects sustained wage growth, rising incomes, and the expansion of formal employment in recent years.

Key Concepts Involved:

• Employees’ Provident Fund Organisation (EPFO): A statutory body in India that administers provident funds, pension schemes, and insurance programs for organized sector employees.
• Employees’ Provident Fund (EPF): A mandatory savings scheme for employees in India, where both employee and employer contribute a portion of the salary for retirement.
• Employees’ Pension Scheme (EPS): A social security scheme under EPFO that provides pension benefits to employees upon retirement or to their families in case of death.
• Employees’ Deposit Linked Insurance Scheme (EDLI): An insurance scheme provided by EPFO that offers life insurance benefits to the nominee of an EPF member upon their death.