On August 28th 2014, the EPFO approved the increase in the Provident Fund Ceiling (or PF Ceiling) from Rs 6500 a month to Rs 15,000. As a result, this will affect tens of thousands of employees' payslips, many of whom are under the PF Ceiling. As an employer, it is important for you to communicate what the impact of this change will have on your employee's payslips, retirement funds and tax liability. We at Quikchex have put together a brief presentation, which highlights how all these changes will impact your employees. Feel free to circulate to your employees!

1. Quikchex: PF Ceiling Update
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Overview of Provident Fund Amendment
On August 28, 2014, the Employee’s Provident Fund Organization approved an amendment to increase the PF ceiling from Rs 6,500 a month to Rs 15,000 a month
To take effect from September 1st 2014 onwards

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Who does this impact?
Employees whose Basic + Dearness Allowance salary is greater than Rs 6,500 a month and who are currently under the PF ceiling Employees whose Basic + Dearness Allowance salary is between Rs 6,500 a month and Rs 15,000 a month and who had previously opted out of PF
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Summary of Impact of the changes
For those employees under the PF Ceiling, Employee Contribution will increase from a max of Rs 780 a month to a max of Rs 1800 a month
For those employees under the PF Ceiling, Employer Contribution will increase from a max of Rs 780 a month to a max Rs 1800 a month
While net take home salary could be decreased, it will be offset by the following benefits:
Increased retirement savings for employee at attractive return rates (currently at 8.75%)
Higher tax savings, given that 80C Limit has now been revised to Rs 1.5 lakhs a year from Rs 1 lakh a year
Employees whose Basic + Dearness Allowance is between Rs 6500 and Rs 15,000 and had previously opted out of PF, will now be required to register under PF.
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Example 1: Employee whose Basic + DA is less than Rs 6500 a month
Old
New
Difference
(A) Basic + DA
₹ 5,000
₹ 5,000
₹ 0
(B) PF Ceiling
₹ 6,500
₹ 15,000
₹ 8,500
(C) Applicable PF Wage (Lower of (A) and (B))
₹ 5,000
₹ 5,000
₹ 0
(D) Employee PF Contribution
₹ 600
₹ 600
₹ 0
(E) Total Employer Pension Contribution
₹ 417
₹ 417
₹ 0
(F) Total Employer PF Contribution
₹ 184
₹ 184
₹ 0
(G) Total PF Deduction from Employee Payslip
₹ 1,200
₹ 1,200
₹ 0
(H)Total Funds Put Towards Retirement
₹ 1,200
₹ 1,200
₹ 0
(I) Increase in Tax Exemption
₹ 600
₹ 600
₹ 0

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Example 2: Employee whose Basic + DA between Rs 6,500 and Rs 15,000
Old
New
Difference
(A) Basic + DA
₹ 12,000
₹ 12,000
₹ 0
(B) PF Ceiling
₹ 6,500
₹ 15,000
₹ 8,500
(C) Applicable PF Wage (Lower of (A) and (B))
₹ 6,500
₹ 12,000
₹ 5,500
(D) Employee PF Contribution
₹ 780
₹ 1,440
₹ 660
(E) Total Employer Pension Contribution
₹ 541
₹ 1,000
₹ 458
(F) Total Employer PF Contribution
₹ 239
₹ 440
₹ 202
(G) Total PF Deduction from Employee Payslip
₹ 1,560
₹ 2,880
₹ 1,320
(H)Total Funds Put Towards Retirement
₹ 1,560
₹ 2,880
₹ 1,320
(I) Increase in Tax Exemption
₹ 780
₹ 1,440
₹ 660

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Example 3: Employee whose Basic + DA greater than Rs 15,000 a month
Old
New
Difference
(A) Basic + DA
₹ 20,000
₹ 20,000
₹ 0
(B) PF Ceiling
₹ 6,500
₹ 15,000
₹ 8,500
(C) Applicable PF Wage (Lower of (A) and (B))
₹ 6,500
₹ 15,000
₹ 8,500
(D) Employee PF Contribution
₹ 780
₹ 1,800
₹ 1,020
(E) Total Employer Pension Contribution
₹ 541
₹ 1,250
₹ 708
(F) Total Employer PF Contribution
₹ 239
₹ 551
₹ 312
(G) Total PF Deduction from Employee Payslip
₹ 1,560
₹ 3,600
₹ 2,040
(H)Total Funds Put Towards Retirement
₹ 1,560
₹ 3,600
₹ 2,040
(I) Increase in Tax Exemption
₹ 780
₹ 1,800
₹ 1,020

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Other Updates
Upon retirement, the minimum pension to be paid has increased to Rs 1000 a month (from Rs 541 a month)
In case of death of PF member, the maximum sum assured to be paid out will increase to Rs 3.60 lakhs instead of the current limit of Rs 1.56 lakhs
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Questions?