The Department of Expenditure has reportedly approved increasing the Employees’ Provident Fund (EPF) wage ceiling from Rs 15,000 to Rs 25,000, as per a report from Moneycontrol. The report also mentions that the exact date for implementing the new wage ceiling will be determined after the Cabinet gives its approval.
The current wage ceiling of Rs 15,000 has been in effect since September 2014. If the report is true, this change can bring a lot of new employees in the ambit of the EPF and the Employees’ Pension Scheme (EPS) as employees earning up to Rs 25,000 in basic pay and dearness allowance will be required to join both the schemes.
While an increase in the EPF wage ceiling to Rs 25,000 might reduce the employees’ take-home pay since a part of their salary will go into the EPF, it will also help them save for retirement. Another major benefit will be a significant boost in EPS pension, which could rise by about 67% compared to the Rs 15,000 wage ceiling, provided the employee earns at least Rs 25,000 in basic pay and dearness allowance (DA) and has completed at least 10 years of pensionable service.
Akhil Chandna, Partner & Global People Solutions Leader, Grant Thornton Bharat, says an increase in the EPF/EPS wage ceiling from Rs 15,000 to Rs 25,000 would substantially enhance the pension entitlement of employees covered under the Employees’ Pension Scheme.
"Since 8.33% of the employer’s statutory contribution is diverted to EPS, increasing the wage ceiling would mean a higher contribution flowing to the pension fund, resulting in a better monthly pension on retirement. Consequently, the employer’s contribution credited to the EPF account would reduce to that extent, marginally lowering the final EPF corpus due to a lower amount available for long-term compounding."
Who gets EPS pension?
According to the current rules, employees with a basic salary and DA of up to Rs 15,000 are mandatory EPS members. They become eligible for pension after completing at least 10 years of service.
As per the EPFO website, any new employee joining an establishment from September 1, 2014, and drawing a basic wage of more than Rs 15,000 per month can’t get the membership of the EPS pension fund.
How is EPS pension calculated?
The EPS pension formula remains the same under the EPS Pension Scheme 2026, which has replaced the EPS 1995 scheme. The formula is as follows-
Monthly EPS pension = (Pensionable salary × pensionable service) ÷ 70
Here pensionable salary is the average monthly salary (basic pay+dearness allowance) drawn during the last 60 months before exiting the pension fund.
In this write-up, we will calculate the monthly EPS pension based on the wage ceilings of Rs 15,000 and Rs 25,000 for service periods ranging from 10 to 30 years. Even though the wage ceiling can go up during an employee’s time at work, we will assume that it will remain at Rs 25,000 throughout their service.
According to EPFO rules, if an employee has 20 or more years of service, they receive a 2-year bonus. It means, if someone has completed 20 years of service, their service years for EPS pension calculation will be counted as 22 years. Similarly, if they have 25 years of service, it will be counted as 27.
30 years of eligible service- Know your EPS pension
| Basic pay | ₹ 25,000 |
| Service years | 32 |
| Pension under Rs 15,000 wage ceiling | ₹ 6,857 |
| Pension under Rs 25,000 wage ceiling | ₹ 11,429 |
| Extra pension under Rs 25,000 wage ceiling | ₹ 4,571 |
| Pension increase (%) | 67% |
25 years of eligible service- Know your EPS pension
| Basic pay | ₹ 25,000 |
| Service years | 27 |
| Pension under Rs 15,000 wage ceiling | ₹ 5,786 |
| Pension under Rs 25,000 wage ceiling | ₹ 9,643 |
| Extra pension under Rs 25,000 wage ceiling | ₹ 3,857 |
| Pension increase (%) | 67% |
20 years of eligible service- Know your EPS pension
| Basic pay | ₹ 25,000 |
| Service years | 22 |
| Pension under Rs 15,000 wage ceiling | ₹ 4,714 |
| Pension under Rs 25,000 wage ceiling | ₹ 7,857 |
| Extra pension under Rs 25,000 wage ceiling | ₹ 3,143 |
| Pension increase (%) | 67% |
15 years of eligible service- Know your EPS pension
| Basic pay | ₹ 25,000 |
| Service years | 15 |
| Pension under Rs 15,000 wage ceiling | ₹ 3,214 |
| Pension under Rs 25,000 wage ceiling | ₹ 5,357 |
| Extra pension under Rs 25,000 wage ceiling | ₹ 2,143 |
| Pension increase (%) | 67% |
10 years of eligible service- Know your EPS pension
| Basic pay | ₹ 25,000 |
| Service years | 10 |
| Pension under Rs 15,000 wage ceiling | ₹ 2,143 |
| Pension under Rs 25,000 wage ceiling | ₹ 3,571 |
| Extra pension under Rs 25,000 wage ceiling | ₹ 1,429 |
| Pension increase (%) | 67% |
