EPFO new instructions

February 21, 2023

The Employee Provident Fund Organization recently issued new instructions on how employees should apply for pensions. Earlier the amount contributed towards the scheme was capped at Rs 15,000. Now EPFO says the employees can contribute more than this. That is, the capping has been removed and there is no limit to the contribution.

What is the EPFO saying?

Both employer and employees contribute a certain amount (from their salary) to the EPFO scheme on monthly basis. The interest rate of this contributed amount (a part of the contributed amount) is 8.33%. When the person retires he gets an accumulative sum. Earlier, a sealing was fixed to the contributed amount. Now, this limit has been removed.

What is the role of SC in the issue?

The issue was, should the amount being contributed sealed at Rs 15,000 or not. GoI wanted to seal it at Rs 15000. But SC ruled to remove the capping.

Background

The Employment Provident Funds Act 1952 did not include any pension scheme. The pension was added to this in 1995 through an amendment to the act. In the 1990s, the maximum pensionable salary was Rs 5000. This was increased to Rs 6500 later. Now the pensions scheme works like this. The Employee puts 12% of his basic salary and dearness allowance, the employer puts 12%, and the Government outs 1.16%. Now from the 12% contributed by the employer, 3.67% is to the EPF and 8.33% is to the EPS. What is the difference between EPF and EPS? In EPF, both the employer and employee contribute. And in EPS only the employer contributes. Now the issue was around the EPS, that is, the amount whose interest is 8.33%. EPS means Employer Pension Scheme and EPF means Employees Provident Fund.

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