EPFO New Rule: Salaried employees may now get ₹10.50 lakh instead of ₹7 lakh; a boost for the EDLI scheme..
The government has made a significant change to EPF-related rules, approving an increase in the salary limit from ₹15,000 to ₹25,000. This change will impact not only the PF fund and pension but also the EDLI (Employees’ Deposit Linked Insurance Scheme) coverage provided to a family in the event of an employee's death. Under the current system, the maximum insurance cover provided by EDLI is ₹7 lakh. With the implementation of the new salary limit, this maximum amount could rise to approximately ₹10.50 lakh or more. However, the official notification regarding the new rule is yet to be issued.
For employees covered by the EPFO, EDLI acts as a form of life insurance protection. If an employee passes away while in service, their nominee or family receives financial assistance under this scheme. The insurance amount is calculated based on the employee's average salary and the average balance in their PF account; therefore, an increase in the salary limit is likely to alter the insurance calculation.
Why might the EDLI insurance amount change?
Currently, the EDLI calculation is based on a maximum salary of ₹15,000. Even if an employee's average monthly salary exceeds this figure, the calculation is restricted to the ₹15,000 limit. Consequently, the maximum insurance payout under EDLI is capped at ₹7 lakh.
If the decision to raise the EPF salary limit to ₹25,000 is implemented, this new limit is likely to be used for EDLI calculations as well. This could result in a higher insurance payout for the families of employees whose average salary is ₹25,000 or more.
How was the figure of ₹10.50 lakh arrived at?
To understand the EDLI insurance calculation simply: the employee's average monthly salary over the preceding 12 months is multiplied by 35. Subsequently, 50% of the average balance in the PF account over the preceding 12 months is added to this amount. The insurance payout under EDLI is determined by combining these two figures.
Based on the current limit of ₹15,000, the calculation yields ₹5.25 lakh (15,000 × 35).
If the proposed limit of ₹25,000 is applied to the EDLI calculation, the figure becomes ₹8.75 lakh (25,000 × 35).
Adding ₹1.75 lakh to this results in a total of ₹10.50 lakh. However, this is an estimated calculation; the actual insurance amount will depend on the government's official notification and the specific changes introduced therein.
Which employees and families stand to benefit?
Employees earning above the current ₹15,000 limit are likely to benefit most directly from this change. Currently, despite higher salaries, EDLI calculations are based on the old limit. Under the new system, the families of higher-earning employees could receive greater financial assistance in the event of the employee's death during service.
An increase in the salary limit could also impact EPF and EPS. This may lead to higher PF contributions for some employees and changes to pension-related benefits. However, the specifics of these changes will only become clear once official rules are issued.
What should employers do now?
For the time being, companies and employers must await the government's formal notification. New calculations for PF, EPS, or EDLI cannot be implemented based solely on Cabinet approval. Only after the notification is issued will it become clear when the new salary limit takes effect and what specific changes will be made to the EDLI calculation method. According to an Economic Times report, Puneet Gupta—Partner, People Advisory Services-Tax at EY India—states that the EPF salary limit plays a crucial role in several areas, such as an employee's PF coverage, mandatory contributions, EPS membership, and EDLI contributions. He notes that raising the limit could expand the scope of employees' retirement savings and social security coverage. However, he also emphasized the need to await an official notification to determine the final impact.