In a positive development for employees, the Government is likely to increase the wage limit for coverage by the Employees’ Provident Fund (EPF).

The change

The monthly wage limit for eligibility for the EPF may be raised from Rs 15,000 to  Rs 21,000 following its acceptance by the EPFO and the labour ministry. This limit was last raised from Rs 6,500 to Rs 15,000 in October 2014. According to the Financial Express, the move is expected to increase the number of EPF subscribers by 50 lakh to 4.25 crore.

What is the EPF

The mandatory EPF or Employees’ Provident Fund is a social security scheme targeted at workers with low to moderate salaries (up to Rs 15,000 per month at present). Employees with higher wages can also be enrolled for the EPF. However, the salary considered for Employees Pension Scheme (EPS) benefits is restricted to 15,000 per month. In addition, EPF is only available to organised sector workers because only establishments employing 20 or more workers have to pay into it.

How much is paid into the scheme

12% of the employee’s salary and has to be matched by another 12% from the employee himself. This matching amount has to be deducted from the monthly salary.

How the money is split

From the employer’s contribution, 8.33% goes to the Employees’ Pension Scheme and 3.67% goes to the Employees’ Provident Fund. The government pays 1.16% of the wages of an employee up to Rs 15,000 to the Employees’ Pension Scheme.

What is the Employees’ Pension Scheme (EPS)

The employees’ pension scheme pays out a pension on retirement. However, you need to have completed at least 10 years of service for this. For service periods lower than 10 years, you can simply withdraw the amount allocated to the EPS based on a formula.

The calculation for EPS payment on retirement, after the completion of 10 years (for employees joining after 1995) is:

(Pensionable Salary * No of years of service)/70

The maximum salary that can be considered here is Rs 15,000. Hence if you have worked for 15 years and have a salary of 15,000 on average for the last 5 years, you will be paid:

75,000/70 = Rs 1,071 per month

There is a separate formula for service before 1995. In addition, the government also guarantees each retiring worker a minimum monthly pension of Rs 1,000. The pension can be passed on to the spouse and up to two children on the death of the employee. However, the EPS is not inflation-linked and will not be raised each year in line with inflation in the manner that government employees’ pensions are.

When you can withdraw your EPF money

  1. When you retire and have crossed the age of 58. You can take the pension as early as the age of 50, however, it will be reduced by 4% for every year that it falls short of 58. You can also defer taking your pension to the age of 60 and in return, you will get a 4% hike in your pension per year of deferral.
  2. You are unemployed for two months or longer.


Both employer and employee contributions to the EPF are tax deductible up to Rs 1.5 lakh per year under Section 80C. The interest on the EPF is also tax-free and so is the corpus at the time of withdrawal, provided that you have completed five years of continuous service (this can be with more than one employer). However, the interest accrued after retirement is taxable as we explain here

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at