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From 1st September 2014 there have been changes in EPF, EPS and EDLI by Employee Provident Fund Organization  (EPFO). This post discusses these changes. New PF rules may lower take-home pay. But increase in the statutory contribution will boost retirement corpus. There is increased Insurance cover if an employee dies in service. The Pension fund has also gone changes and those  who started their jobs after 1 Sep 2014 and earn more than 15,000 do not have to contribute to Pension scheme of EPF. The process for transfer of EPF and withdrawal of EPF remain unchanged.

EPF regulations Before 1 September  2014

Employee Provident Fund (EPF),commonly called PF,  is one of the main platforms of savings for retirement  in India for salaried class i.e nearly all people working in Government, Public or Private sector Organizations. The tax saving under section 80C, tax-free interest, compounding  and the maturity ensures a good growth of our money.  Interest rate on EPF is announced every year. In the past several decades, the interest rate has ranged from 8-12 % of the balances maintained in the fund.  Our article EPF Interest Rate from 1952 and EPFO, discusses it in detail.

The employer and the employees need to contribute to the EPF from the monthly basic salary plus the dearness allowance towards EPF.The employee contribution is 12% of the monthly basic salary plus dearness allownace. The employer contribution is 13.61 % of the employees’ salary. Employer’s contribution  actually gets split into EPFEmployees’ Pension Scheme (EPS) which offers pension on disablement, widow pension, and pension for nominees and Employees Deposit Linked Insurance Scheme (EDLIS) which offers  life insurance cover  to the PF member.  An employee with monthly salary of up to Rs 6,500 was a member under the three schemes . An employee  can always invest more than 12% of his  basic salary in EPF which is called Voluntary Provident Fund (VPF).  Our articleVoluntary Provident Fund, Difference between EPF and PPF discusses it in detail. The Distribution of employer’s contribution is as given below. Our article Basics of Employee Provident Fund: EPF, EPS, EDLIS talks about EPF, EPF, EDLIS in detail.

Scheme Name Employee contribution Employer contribution
Employee provident fund 12% 3.67%
Employees’ Pension scheme 0 8.33%
Employees Deposit linked insurance 0 0.5%
EPF Administrative  charges 0 1.1%
EDLIS Administrative charges 0 0.01%

Our article How to get information about EPF balance : Annual Statement, SMS, E-Passbook and EPF SMS What is EE, ER? How much on Withdrawal from EPF? talks about actually how much would one get.

Change in EPF from September 1, 2014

Change in salary limit for EPF contribution from Rs 6500 to 15,000

The existing salary limit of Rs 6,500 has been increased to Rs 15,000,  thereby expanding both membership base and the quantum of contributions.
Now an employee with monthly salary above Rs 6,500 but up to Rs 15,000 will also be covered under the three schemes. Unlike PF and insurance scheme, voluntary membership is not available under the pension scheme for an employee with monthly salary of above Rs 15,000.

With the new salary limit of Rs 15,000 for calculating contributions, the total contributions – both by the employer and the employee will increase. Earlier the contributions were limited on a salary of Rs 6,500. The move to enhance the minimum wage ceiling for becoming a subscriber of Employees’ Provident Fund Organisation to Rs 15,000 per month is expected to bring 50 lakh additional formal sector workers under the ambit of the body.   EPFO’s Notice on increase in limit from 6500 to 15,000  This is discussed in detail in the section  What the changes in EPF after 1 Sep 2014 mean of our article

Increased Monthly Pension

The government has also fixed monthly pension benefit at Rs 1,000 for the financial year 2014-15 . Those who started job after 1 Sep 2014 and earning more than 15,000  Rs in basic and DA will not be contributing to the Pension scheme.

Under new rules, widow of a member will get a minimum monthly pension of Rs 1,000. For children it is fixed Rs. 250 and orphans it is Rs. 750 per month.To arrive at pension, salary will be average of 60 months last drawn salary instead of earlier rule of last 12 months average salary. The government’s decision to fix pension entitlement of Rs 1,000 under the Employees’ Pension Scheme 1995 (EPFS-95) immediately benefited 28 lakh pensioners.

The entire pension scheme of EPFO was considered to be a pack of cards which may eventually collapse, as the existing and new members are subsidising the pensioners. Today, there are about 45 lakh pensioners while about 2.75 crore members are contributing to the EPFO pension fund. However, this trend is bound to reverse in the next two decades as the population growth and incomes stabilise. Then, there will be a very fast depletion of the fund corpus as the pension based on last pay drawn has no correlation to a member’s contribution, which is less than what he gets as pension. The only difference is that the existing  members have to mandatorily contribute and, to that extent, the scheme can be sustained for a bit longer before it eventually collapses. To fix this EPF rules were changed So those who started job after 1 Sep and earning more than 15,000 Rs in basic and Dearness Allowance will not get any pension.

Increased Insurance

Earlier each member who is part of EPF scheme had a insurance coverage of Rs. 1,56,000. This insurance coverage is now raised to Rs. 3,00,000. Actually the amount becomes  Rs 3.6 lakh including 20% ad hoc benefit over the prescribed amount of 3,00,000 . This means that in case an EPFO subscriber dies, his family will be entitled to maximum sum assured of Rs 3.6 lakh instead of existing Rs 1.56 lakh

Increase in limit of Employees Deposit Linked Insurance Scheme (EDLIS)
Under the EDLI scheme life insurance cover is provided to the PF members. The cost of the scheme is borne by the employer but as the amount of life coverage under this statutory scheme is very low. Usually employers opt out of the EDLI scheme by going for group insurance scheme which usually provides higher coverage to employees without any increase in cost to the employer.  EPFO notice about increase in limit of EDLIS(pdf format)

The changes in EDLI scheme over the years have been as follows:

  • In 1976, when the scheme was introduced the benefits were as follows:
    • 1. In case of death of an employee while in service, in addition to the accumulated amount of Provident Fund to his credit an additional amount equal to the balance at the time of death subject to a maximum of Rs. 10,000 will be paid to his family.
    • 2. For this benefit, all the employers covered under the PF Act, shall contribute 50 paise for every hundred Rupees Salary towards the insurance and one paisa for every Rs.100 salary towards administrative expenses.
    • The scheme also provides an exemption clause Section 17(2A), as per which if the employer provides better benefits than that of the EDLI Scheme, then he can discontinue payment of the above contribution of 51 paise per every Rs. 100 salary to the PF authorities, but after getting exemption from the Central Provident Fund Commissioner (CPFC), New Delhi.
  • In 1990, the death benefit was made equal to the PF balance upto 15,000. If PF balance was above 15000, the death benefit was equal to 15,000 + one fourth of the amount in excess of 15,000 subject to a maximum of 25,000.
  • In 1994, the death benefit was made equal to the PF balance upto 25,000. If the PF balance was above 25000, the death benefit was equal to 25,000 + one fourth of the amount in excess of 25,000, subject to a maximum of 35,000.
  • In 2000, the death benefit was made equal to the PF balance upto 35,000. If  the PF balance is above 35000, the death benefit was equal to 35000 + one fourth of the amount in excess of 35000, subject to a maximum of 60,000.
  • In 2010, the death benefit was made equal to the PF balance upto  50,000, and 40% of the PF balance in excess of 50,000, subject to a maximum benefit of Rs. 1,00,000.
  • In 2011 that the death benefit was modified to be calculated as earlier or last drawn salary (with a maximum of 6500) x service with a maximum of 1,30,000, whichever is higher.

To claim EDLI one needs to fill Form 51F and submit it to EPF. Usually the Employer’s help the family of deceased in claiming this amount.

What the changes in EPF after 1 Sep 2014 mean

Nothing changes for those with a monthly salary of up to Rs 6,500, as both employer’s and employee’s contributions will still be mandatory and will be based on actual salary.

Employees with monthly salary of up to Rs 15,000 who have not opted for voluntary membership earlier, will now be required to become members of all three schemes. Whether enrolled prior to or after September 1, both the employer’s and employee’s contributions will be on salary of Rs 15,000 unless an option is availed to contribute on a higher salary.

For Ex, a person who earns a monthly salary of Rs 12,000.

  • Earlier he was contributing 12% of 6500 i.e 780  towards PF, now he will have to shell out an 12 per cent of Rs 12,000 Rs 1,440 each month i.e extra Rs 660 every month
  • Similarly, even his employer’s contribution will increase to Rs 1,440 every month, which will be allocated as follows: Rs 1,000 (8.33% of Rs 12,000) towards pension Scheme and the balance Rs 440 towards PF. The employer would deposit an additional Rs 60 (0.5 per cent of Rs 12,000) towards insurance scheme.

For employees earning monthly salary exceeding Rs 15,000, the membership of Employee Pension Scheme is voluntary. For new members joining the scheme on or after 1 September 2014, the contribution is required to be made only under the PF and insurance scheme – as such employees are not eligible for membership under the pension scheme. Members limiting monthly contributions on salary of Rs 6,500 earlier will now have to contribute on at least salary of Rs 15,000.

A person earning a monthly salary of Rs 20,000.

  • From September 1, his contributions will increase to 12% of Rs 15,000 i.e Rs 1,800
  • Employer’s share of Rs 1800 to EPF will be split as 8.33% of Rs 15,000 i.e  Rs 1,250 to the pension scheme and balance Rs 550 as employer’s share to the PF.

For a person has taken his first job after 1 September 2014, both the employer’s and employee’s share, 12% of salary each will be allocated fully to the PF.

On a whole, in spite of a possible impact on the monthly take-home salary, the revision of statutory salary ceiling to Rs 15,000 may do wonders for retirement savings.

Monthly Salary

 Before/After

Provident Fund

Pension Scheme

Insurance Scheme

Upto 6500

Before 1 Sep 2014

Mandatory

Mandatory

Mandatory

After 1 Sep 2014

Mandatory

Mandatory

Mandatory

Between 6500 to 15000

Before 1 Sep 2014

Voluntary

Mandatory if covered under PF

Mandatory if covered under PF

After 1 Sep 2014

Mandatory

Mandatory

Mandatory

More than Rs 15,000

Before 1 Sep 2014

Voluntary

Mandatory if covered under PF

Mandatory if covered under PF

After 1 Sep 2014

Voluntary

Cannot become a member

Mandatory if covered under PF

Related Articles :

EPFO like Income Tax organization is making changes to stay in tune with times.  Due to increase in limit from 6500 to 15,000 one’s take home may be lower But increase in the statutory contribution will boost retirement corpus.

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