Synopsis

In a significant update, the EPFO wage ceiling limit has been modified to Rs 25,000 monthly. This modification will add fifty-one lakh workers to the social security umbrella. With this change, both employee and employer contributions will go up from Rs 1800 to Rs 3000, potentially cutting monthly take-home pay by Rs 1200.

The Union Government has announced that the EPFO wage ceiling limit for mandatory coverage will be increased from Rs 15,000 to Rs 25,000 per month. The press release said that this higher ceiling will bring about 51 lakh more employees within the statutory social-security framework, giving them access to EPF savings, pension protection under EPS and insurance protection under EDLI, subject to the applicable scheme provisions.



The press release dated September 16, 2026 has also said the change will enable the statutory contribution and pensionable-wage framework to better reflect prevailing wage levels. However, the press release does not specify the detailed contribution calculation for employees who are already contributing on actual wages above Rs 25,000.



Therefore, the actual impact on such employees will depend on the detailed statutory and administrative provisions issued for implementing the decision, which the Ministry of Labour and Employment is soon expected to announce.

Reduced take home salary for employees due to higher wage ceiling limit?

EPF contribution is contributed by both employer and employee in the same percentage i.e. 12% of wage ceiling limit. The earlier calculation was Rs 1800 which is 12% of Rs 15,000 (this was the fixed statutory limit from 2014). Now it is Rs 25,000. So Rs 3000 which is 12% of Rs 25,000 is the new contribution by both employer and employee.



Thus Rs 1200 (3000-1800) is the extra EPF contribution from both employer and employee (Rs 1200*2= Rs 2400).



Arvind Baheti, Partner at Khaitan & Co said to ET Wealth Online that due to the enhancement in wage ceiling limit from Rs 15,000 to Rs 25,000 the cost for employers is bound to increase from Rs 1,800 per month to Rs 3,000 per month per employee.



Baheti says that the tricky part is if the employer wants to restructure the CTC of the employee to off-set the increased PF incidence on account of their own (employer’s) contribution with any other component of the employee's CTC then legally it would be challenging due to Section 124 of the Social Security code read with Para 21 of the EPF Scheme, 2026.



Baheti thus says the increased PF cost for the employer will have to translate into a higher CTC. For example, if the current CTC of an employee is Rs 20 lakh, the increase in the employer contribution by Rs 14,400 per annum (Rs 1200*12) cannot be adjusted against any other component of the CTC with the objective of keeping the old CTC intact. Hence, the CTC will have to be revised to Rs 20.14 lakh (20,14,400).



In simpler terms there are two options of which option 2 is legally challenging:

• Option 1: Reduce take home by Rs 1,200: The company bears Rs 1200 per month extra (employer contribution) cost and employee gets Rs 1200 less take home pay due to employee’s own higher contribution to EPF. So employee gets a less take home by Rs 1200 but the same corresponding amount gets deposited in EPF corpus. OR
• Hypothetical option 2: Reduce take home by full Rs 2,400 (legally challenging option under new labour code, need more clarity): In this option here your take home is reduced by full Rs 2400 monthly and this means the extra cost for higher EPF contribution on Rs 25,000 wage ceiling limit is fully passed to employee. The same corresponding amount is added to EPF corpus of the employee but the monthly take home reduces by Rs 2400.

In both the options 1 and 2, the employee loses on take home salary but gains a higher EPF corpus.

Option 1: Take home reduces by Rs 1200 for employee

Alok Agrawal, Partner, Deloitte India said to ET Wealth Online if employees whose EPF contribution was earlier capped at Rs 15,000 wage ceiling limit, the increase in the EPF wage ceiling to Rs 25,000 raises both employee and employer contributions from Rs 1,800 to Rs 3,000 a month.



Agrawal says: “In such case, the combined impact can reduce pre-tax cash take-home by about Rs 1,200 a month, or Rs 14,400 annually, with the amount instead accumulating toward social-security benefits.”



Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas says that CTC usually includes employer’s PF contribution. She says: “The increase in the wage ceiling may impact take home but it is possible that it will be adjusted within the CTC.”

Source: Shardul Amarchand Mangaldas

Option 2: The fixed CTC legally challenging option- Rs 2400 monthly reduction in take home pay

In the hypothetical scenario where the company reduces take home pay to factor for higher EPF contribution then the take home pay reduces by Rs 2400 for the employee. (legally speaking this option is difficult for companies to implement).



Noorul Hassan, executive partner, Lakshmikumaran & Sridharan, said to ET Wealth Online: “In a fixed CTC structure, this can translate to a reduction of Rs 2,400 in net take-home per month and a corresponding increase of Rs 1,200 per month in PF corpus.”



Vivek Jalan , Partner, Tax Connect Advisory Services LLP, says that if the CTC is kept fixed i.e. it is not increased to factor in the increased cost of the employer on contributing to EPF at enhanced Rs 25,000 wage ceiling limit then this higher employer contribution is absorbed within the same CTC, meaning the additional Rs 1,200 employer cost is effectively passed back to the employee by reducing the cash component of salary.



Jalan says: “Thus, in this particular scenario, the net reduction in in-hand salary is Rs 2,400 per month (Rs 28,800 annually) when both employee and employer contributions are considered under a fixed CTC framework.”



Baheti says that if the increase in the cost of PF contribution is not passed on by the employer to the employee, i.e., the employee’s in-hand salary is kept insulated, the CTC will inevitably have to be increased by the employer to absorb the increase in PF incidence for both employer and employee.



Baheti explains with an example, if the CTC was Rs 20 lakhs per annum, with an in-hand salary of Rs 17 lakhs per annum, and the increase in the PF wage ceiling results in an additional PF contribution of Rs 14,400 per annum each towards the employer’s and the employee’s contributions, the CTC would need to be increased by the combined additional PF contribution of the employer and the employee, i.e., Rs 28,800 per annum. Accordingly, CTC would need to be revised upwards to Rs 20.28 lakh (20,28,800) per annum, in order to keep the employee’s in-hand salary unchanged.

Why under the Labour code it is legally challenging to reduce take home pay to offset for higher employer cost due to EPF contribution?

The increase in cost for paying a higher EPF contribution by the employer has a legal challenge also.



Asish Philip Abraham, executive partner, Lakshmikumaran & Sridharan, a law firm, said to ET Wealth Online, the proposed increase in the statutory wage ceiling to Rs 25,000 would result in the minimum monthly EPF contribution increasing from Rs 1,800 to Rs 3,000. Consequently, both the employer and the employee would be required to absorb an additional contribution of Rs 1,200 per month each (Rs 2400 total).



Abraham explains that employers may have limited ability to offset this impact through a reduction in employees’ remuneration, given the protection envisaged under Section 124 of the Social Security Code, 2020, which provides that the implementation of the Code should not result in a reduction in employees’ take-home pay solely on account of the transition to the revised wage framework.

Employer gets no financial benefit if it absorbs the cost in both Option-1 and Option-2

Col Sanjeev Govila (retd), Certified Financial Planner, CEO, Hum Fauji Initiatives, a financial advisory firm says that in many organisations, the salary structure may instead be reworked within the existing CTC, subject of course to employment terms and applicable wage rules.



Govila explains with an example: if an employee has a fixed annual CTC of Rs 8 lakh and employer PF within that CTC rises by Rs 1,200 per month. An employer is unlikely to automatically increase the CTC to Rs 8.144 lakh merely because the statutory contribution has risen.



If the employer chooses to protect the existing salary structure and absorbs the additional PF contribution over and above CTC, its employment cost rises by Rs 14,400 annually per employee.



Govila says: “Unlike the employee, who receives the benefit as retirement savings/pension, the employer receives no corresponding financial asset. This distinction will matter considerably for companies with large payrolls and decide how is the new provision finally implemented in the companies.”

(Join our ETWealth WhatsApp channel for all the latest updates)

Add as a Reliable and Trusted News Source
Add Now!

(Catch all the Personal Finance News, Breaking News, Budget 2025 Events and Latest News Updates on The .)

…more