The government’s decision to increase the Employees’ Provident Fund (EPF) wage ceiling from Rs 15,000 to Rs 25,000 can help an employee create a significantly higher retirement corpus over a long service period if they contribute at the wage ceiling during their service.
Under the old wage ceiling of Rs 15,000, if an employee was contributing to the EPF scheme at the wage ceiling limit, their monthly contribution was Rs 1,800 a month (12% of Rs 15,000). The same contribution was also from the employer’s side. With the new wage ceiling of Rs 25,000, the EPF contribution will also increase to Rs 3,000 per month (12% of Rs 25,000). A higher monthly contribution can create a significantly higher corpus for an employee if they contribute to the EPF at the wage ceiling.
Here, it should be also known that for employees who are both part of the EPF and EPS, the employer’s monthly contribution of Rs 1,800, goes to both funds- 3.67% of basic pay to the EPF and 8.33% of basic pay towards the EPS.
But for those, who are not part of the EPS, the entire employer EPF contribution is directed towards the employee’s EPF.
Employees with basic pay of more than Rs 15,000 who joined their service on or after September 1, 2014, couldn’t join the EPS.
For employees who are not part of the EPS, that EPF contribution will also increase Rs 1,800 to Rs 3,000 a month under the Rs 25,000 EPF wage ceiling.
But how much difference can the increased amount make to such employees’ EPF corpus over a 30-year service period?
EPF contribution of Rs 1,800 a month
Assuming that the employee and employer contributed Rs 1,800 per month each towards the employee’s EPF account and there was no EPS contribution, at an 8.25% interest rate, the EPF corpus would be nearly Rs 55.47 lakh.
EPF corpus calculation at Rs 1,800/month EPF contribution:
Employee’s monthly EPF contribution: Rs 1,800
Employer’s monthly EPF contribution: Rs 1,800
Investment period: 30 years
EPF interest rate: 8.25% (assuming that the rate won’t change for 30 years)
Total contribution over 30 years (employee+employer): Rs 12.96 lakh
Interest earned: Rs 42.50 lakh
Corpus after 30 years: Rs 55.47 lakh (approximately)
EPF corpus calculation at Rs 3000/month EPF contribution
Now see how under the Rs 25,000 wage ceiling, the employee and the employer monthly contributions towards the employee’s EPF fund will increase to Rs 3,000 each month.
At an 8.25% EPF interest rate, the corpus would be around Rs 92.45 lakh in 30 years.
EPF corpus calculations
Employee’s monthly EPF contribution: Rs 3,000
Employer’s monthly EPF contribution: Rs 3,000
Investment period: 30 years
EPF interest rate: 8.25%
Total contribution over 30 years (employee+employer): Rs 21.60 lakh
Interest earned: Rs 70.85 lakh (approximately)
Corpus after 30 years: Rs 92.45 lakh (approximately)
Here too, the interest earned over the long investment period is substantially higher than the amount contributed.
It means a Rs 3,000 monthly EPF contribution can create a nearly Rs 37 lakh higher corpus compared to when it is contributed at Rs 1,800 a month.
Rs 92.45 lakh - Rs 55.47 lakh= Rs 36.98 lakh
EPF calculation comparison
| Particulars | ₹1,800 monthly employee contribution | ₹3,000 monthly employee contribution |
| Employee monthly EPF contribution | ₹1,800 | ₹3,000 |
| Employer monthly EPF contribution | ₹1,800 | ₹3,000 |
| Investment period | 30 years | 30 years |
| EPF interest rate | 8.25% | 8.25% |
| Total contribution over 30 years | ₹12.96 lakh | ₹21.60 lakh |
| Interest earned | ₹42.50 lakh | ₹70.85 lakh |
| Corpus after 30 years | ₹55.47 lakh | ₹92.45 lakh |
Note: This calculation is only for illustration purposes as 8.25% interest rate and a fixed monthly contribution for 30 years can vary over the years. Actual EPF returns can vary depending on the interest rate declared for each financial year.
EPF calculator used: Cleartax
