EPF Wage Ceiling Raised to ₹25,000 (S.O. 5109(E)): PF, EPS & Take-Home Impact
By Murali Krishna Ravuri, Krishna & Associates, Bengaluru | 24 September 2026 | Law as on 24 September 2026
In short
The Central Government has raised the monthly wage ceiling for the Employees' Provident Fund from ₹15,000 to ₹25,000 by Notification S.O. 5109(E) dated 17 September 2026, effective the same day. The contribution rate is unchanged at 12% each from employer and employee; what changes is the wage on which it is computed and who is compulsorily covered. For an employee whose PF was capped at ₹15,000, the monthly PF deduction goes up by as much as ₹1,200, and take-home pay falls by the same amount. Where the employer's PF share is built into the CTC, the fall can be ₹2,400. Employees earning ₹15,001 to ₹25,000 who were outside PF till now must be enrolled.
Contents
- The legal basis
- "Wages" does not mean basic salary alone
- What has changed: the numbers
- Who is affected, and how
- Worked examples: PF contribution and take-home salary
- Take-home impact at a glance
- Income-tax angle: old regime vs new regime
- EPS pension, and the points still awaited from EPFO
- Conflicting positions employers must note
- Compliance timeline, interest, damages and penalties
- Action checklist for employers and payroll teams
- Frequently asked questions
1. The legal basis
Since 21 November 2025, provident fund has been governed by the Code on Social Security, 2020 ("the Code"), which subsumed the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Section 2(89) of the Code defines the "wage ceiling" as the amount of wages notified by the Central Government for Chapter III (Employees' Provident Fund).
The Ministry of Labour and Employment first used this power through Notification S.O. 2702(E) dated 29 May 2026. That notification kept the ceiling at ₹15,000, the same figure in force since 1 September 2014, and only moved it under the new Code. Then, on 16 September 2026, the Union Cabinet approved a ceiling of ₹25,000, and the Ministry notified it the next day:
| Particular | Detail |
|---|---|
| Notification | S.O. 5109(E) dated 17 September 2026 [F. No. R-12025/01/2026-SS-II], Gazette of India Extraordinary, Part II, Section 3(ii) |
| Power exercised | Section 2(89), Code on Social Security, 2020 |
| Revised ceiling | ₹25,000 per month, for the purposes of Chapter III of the Code |
| Supersedes | S.O. 2702(E) dated 29 May 2026 (₹15,000), except as regards things already done or omitted before supersession |
| Effective date | 17 September 2026, the date of publication in the Official Gazette. The change is prospective; there is no retrospective liability for earlier months. |
The Government expects the revision to bring more than 51 lakh additional employees under compulsory EPF, EPS and EDLI coverage. It puts the total annual Government outgo at about ₹11,339 crore, against existing support of about ₹10,250 crore, and about ₹56,696 crore over five years.
2. "Wages" does not mean basic salary alone
Both the ceiling and the contribution apply to "wages" as defined in Section 2(88) of the Code, not to CTC, gross salary or the "Basic" line on a payslip. Wages include basic pay, dearness allowance and retaining allowance. The definition then excludes items such as HRA, conveyance, statutory bonus, overtime and commission. Under the proviso, however, if the excluded items together exceed 50% of total remuneration, the excess is added back to wages.
(The same wage definition now drives ESI coverage too; see our ESI article.) This matters under the new ceiling. Take an employee with "Basic" of ₹14,000 and total remuneration of ₹40,000. That employee may have ₹20,000 of statutory wages (50% of ₹40,000) and is therefore within the ₹25,000 ceiling. Before deciding whether an employee is covered, employers must first recompute wages under Section 2(88).
3. What has changed: the numbers
The contribution rate is 12% of wages each for employee and employer. This is the rate applicable to establishments specified under Section 16(1) of the Code; almost all establishments fall here, and a notified class may pay 10%. Of the employer's 12%, 8.33% goes to the Employees' Pension Scheme (EPS) and the balance 3.67% goes to the employee's PF account. The employer also pays EDLI at 0.5% and administrative charges at 0.5%. The table below shows the maximum amounts per month when contributions are restricted to the ceiling:
| Component (per month) | Up to 16.09.2026 (₹15,000 ceiling) | From 17.09.2026 (₹25,000 ceiling) | Increase |
|---|---|---|---|
| Employee share @ 12% (deducted from salary) | 1,800 | 3,000 | 1,200 |
| Employer share to EPS @ 8.33% | 1,250 | 2,083 | 833 |
| Employer share to EPF @ 3.67% (balance) | 550 | 917 | 367 |
| Total employer share @ 12% | 1,800 | 3,000 | 1,200 |
| EDLI @ 0.5% | 75 | 125 | 50 |
| Administrative charges @ 0.5% | 75 | 125 | 50 |
| Total cost to employer | 1,950 | 3,250 | 1,300 |
| Total credited to employee's PF account (employee 12% + employer 3.67%) | 2,350 | 3,917 | 1,567 |
EPFO rounds each component to the nearest rupee. The EPF share is worked out as the employer's 12% minus the EPS share, which is why it shows ₹917 and not ₹917.50.
4. Who is affected, and how
| Employee category (statutory wages) | Effect from 17.09.2026 |
|---|---|
| Up to ₹15,000, already a member | No change. |
| ₹15,001 – ₹25,000, not a member so far (treated as an excluded employee) | Now compulsorily covered. Enrol, generate a UAN or link the existing one, and contribute 12% + 12% on actual wages from 17.09.2026. EPS and EDLI apply. |
| Above ₹15,000, already a member, contribution restricted to ₹15,000 | Contribution base rises to actual wages or ₹25,000, whichever is lower. Employee deduction goes up by as much as ₹1,200 a month. |
| Above ₹15,000, already a member, contributing on full actual wages | Total PF outgo does not change. For EPS members, more of the employer share goes to EPS (up to ₹2,083) and less to the PF account; EDLI rises by up to ₹50. See the EPS caveat in Section 8. |
| Above ₹25,000, not a member | No change. Still an excluded employee; voluntary coverage is possible with employer consent. |
| Above ₹25,000, already a member | Stays a member. Crossing the ceiling does not end membership ("once a member, always a member"). If contribution is restricted, the cap rises to ₹25,000. |
5. Worked examples: PF contribution and take-home salary
The examples use Karnataka Professional Tax of ₹200 a month, which applies at gross salary of ₹25,000 and above (₹300 in February), and leave out income tax (covered in Section 7). All figures are monthly and in rupees. Each example shows a full month from October 2026 onwards; the September 2026 transition month is covered separately in Example 5.
Example 1: Existing member whose PF was capped at ₹15,000
Ravi's statutory wages are ₹30,000 and his gross salary is ₹50,000. His employer pays its PF share over and above gross salary and has always restricted PF to the ceiling.
| Particulars | Before | After | Change |
|---|---|---|---|
| Gross salary | 50,000 | 50,000 | – |
| PF wages (capped) | 15,000 | 25,000 | +10,000 |
| Less: Employee PF @ 12% | 1,800 | 3,000 | +1,200 |
| Less: Professional Tax | 200 | 200 | – |
| Take-home (before income tax) | 48,000 | 46,800 | –1,200 |
| Credited to Ravi's PF account (1,800 + 550 → 3,000 + 917) | 2,350 | 3,917 | +1,567 |
| Employer's EPS contribution | 1,250 | 2,083 | +833 |
| Employer's total cost (12% + EDLI + admin) | 1,950 | 3,250 | +1,300 |
Ravi's take-home falls by ₹1,200 a month (₹14,400 a year). His PF account, however, receives ₹1,567 more every month, and his pension contribution goes up by ₹833.
Example 2: New entrant to PF, wages between ₹15,001 and ₹25,000
Priya's statutory wages are ₹20,000 and her gross salary is ₹32,000. She joined in 2025 and was treated as an excluded employee because her wages were above ₹15,000. From 17 September 2026 she has to be enrolled.
| Particulars | Before | After | Change |
|---|---|---|---|
| Gross salary | 32,000 | 32,000 | – |
| Less: Employee PF @ 12% of ₹20,000 | Nil | 2,400 | +2,400 |
| Less: Professional Tax | 200 | 200 | – |
| Take-home (before income tax) | 31,800 | 29,400 | –2,400 |
| Employer: EPS @ 8.33% | Nil | 1,666 | +1,666 |
| Employer: EPF (12% less EPS) | Nil | 734 | +734 |
| Employer: EDLI + admin (0.5% + 0.5%) | Nil | 200 | +200 |
| Employer's total additional cost | – | 2,600 | +2,600 |
This group sees the largest change: take-home falls by the full 12% of wages. In return, Priya's PF account builds up by ₹3,134 a month (₹2,400 + ₹734), and she now has pension and EDLI cover.
Example 3: CTC-based structure (employer PF inside CTC)
Arjun's CTC is ₹6,00,000 a year, or ₹50,000 a month, and his statutory wages are ₹25,000. Like many companies, his employer shows its own PF share as part of CTC, so gross salary = CTC − employer PF.
| Particulars | Before | After | Change |
|---|---|---|---|
| Monthly CTC | 50,000 | 50,000 | – |
| Less: Employer PF inside CTC | 1,800 | 3,000 | +1,200 |
| Gross salary | 48,200 | 47,000 | –1,200 |
| Less: Employee PF | 1,800 | 3,000 | +1,200 |
| Less: Professional Tax | 200 | 200 | – |
| Take-home (before income tax) | 46,200 | 43,800 | –2,400 |
If the CTC is left as it is, take-home falls by ₹2,400 a month: ₹1,200 of the employee's own share plus ₹1,200 of the employer's share absorbed within the CTC. Some employers also load EDLI and admin charges into the CTC; that takes another ₹100 a month. Whether an employer can legally re-cut a fixed CTC this way is discussed in Section 9.
Example 4: Existing member already contributing on full wages
Meena's statutory wages are ₹40,000. She has been an EPS member since 2012, and her employer contributes 12% on the full ₹40,000.
| Particulars | Before | After | Change |
|---|---|---|---|
| Employee PF @ 12% of ₹40,000 | 4,800 | 4,800 | – |
| Employer: EPS (8.33% of ceiling) | 1,250 | 2,083 | +833 |
| Employer: EPF (balance of 4,800) | 3,550 | 2,717 | –833 |
| EDLI @ 0.5% (on ceiling) | 75 | 125 | +50 |
| Admin charges @ 0.5% of EPF wages | 200 | 200 | – |
| Credited to PF account (4,800 + employer EPF) | 8,350 | 7,517 | –833 |
Meena's take-home does not change. What changes is the split: ₹833 a month moves from her withdrawable PF account to the pension fund, which is not withdrawable in the same way. Her PF corpus grows more slowly, and her pension goes up.
Example 5: The September 2026 transition month
The ceiling changed on the 17th of a 30-day month. Pending EPFO's operational instructions (see Section 8), the approach most widely adopted is a split computation. For Ravi from Example 1, with wages of ₹30,000:
| Period | Computation | PF wages |
|---|---|---|
| 1 – 16 September (16 days) | ₹15,000 × 16/30 | 8,000 |
| 17 – 30 September (14 days) | ₹25,000 × 14/30 | 11,667 |
| September PF wages | 19,667 |
On ₹19,667: employee share ₹2,360; employer EPS ₹1,638; employer EPF ₹722; EDLI ₹98; admin ₹98. Ravi's September deduction therefore goes up by ₹560, not ₹1,200. For Priya from Example 2, who enters PF on 17 September, PF wages for September are ₹20,000 × 14/30 = ₹9,333. Her employee share for the month is ₹1,120.
Example 6: Employee at or below ₹15,000
An employee with statutory wages of ₹14,000 contributed ₹1,680 before and contributes ₹1,680 now. Raising the ceiling makes no difference to anyone whose wages are already below the old limit.
6. Take-home impact at a glance
| Situation | Monthly fall in take-home | Annual fall |
|---|---|---|
| Wages ≤ ₹15,000 | Nil | Nil |
| Existing member, capped at ceiling, wages ≥ ₹25,000; employer PF outside CTC | 1,200 | 14,400 |
| Existing member, capped at ceiling, wages ≥ ₹25,000; employer PF inside CTC | 2,400 | 28,800 |
| Existing member, capped, wages between ₹15,001 and ₹25,000 (W) | 12% × (W − 15,000) | ×12 |
| Newly covered employee, wages W (₹15,001 – ₹25,000) | 12% × W (up to 3,000) | up to 36,000 |
| Member already contributing on full actual wages | Nil (only the EPF/EPS split changes) | Nil |
The money deducted is not lost. It is saving that is credited to the employee's PF account, earning interest at the notified rate (8.25% for FY 2025-26), and to the pension fund.
7. Income-tax angle: old regime vs new regime
Tax Year 2026-27 (FY 2026-27) onwards: Income-tax Act, 2025. The employee's own PF contribution qualifies for deduction under Section 123 read with Schedule XV of the Income-tax Act, 2025 (formerly Section 80C of the 1961 Act), within the overall limit of ₹1,50,000. This deduction is available only under the old regime. It is not available under the default new regime under Section 202.
For Ravi (Example 1), the extra ₹1,200 a month is ₹14,400 a year. If he is under the old regime and has not used up the ₹1.5 lakh limit, that saves tax of up to ₹4,493 at the 30% slab (₹2,995 at 20%), including 4% cess. His real annual fall in take-home is then about ₹9,900 rather than ₹14,400. Under the new regime there is no offset, and the full ₹14,400 comes out of take-home.
The employer's contribution to a recognised provident fund is not taxed in the employee's hands at these wage levels. From Tax Year 2026-27, the Finance Act, 2026 dropped the earlier "12% of salary" limit (paragraph 6(a) of Part A of Schedule XI to the Income-tax Act, 2025). The only test now is the ₹7,50,000 cap under Section 17(1)(h) on the aggregate of employer contributions to PF, NPS and superannuation fund, and a 12% contribution on ₹25,000 is nowhere near it. Interest on employee contributions above ₹2,50,000 a year is taxable, but that is not triggered at these wage levels either.
The ₹14,400 figure is a full-year figure. For Tax Year 2026-27 itself, Ravi's extra PF deduction is ₹7,760: ₹560 for September (see Example 5) plus ₹1,200 for each of the six months from October to March.
FY 2025-26 (AY 2026-27): not affected. The new ceiling applies only from 17 September 2026, which falls in Tax Year 2026-27. Returns for FY 2025-26 remain under the Income-tax Act, 1961 (Section 80C).
8. EPS pension, and the points still awaited from EPFO
Pension benefit. EPS pension = (Pensionable Salary × Pensionable Service) ÷ 70, where pensionable salary is the average of the last 60 months' salary, capped at the ceiling. On a purely illustrative basis, assuming a full 35-year career contributed at the ceiling throughout, pension would be ₹7,500 a month at ₹15,000 and ₹12,500 a month at ₹25,000. These figures leave out the 2-year service weightage allowed for 20 or more years of service. In practice the benefit builds up only as months at the higher ceiling enter the 60-month average, and the proportionate calculation for service spread across different ceilings follows the EPS rules.
Points not yet settled. As on 24 September 2026, the Gazette notification only fixes the ceiling. EPFO's operational circular on implementation has not yet been issued. The following points are therefore open, and practitioners are taking different positions on them:
(a) Transition month. The ECR has historically accepted one EPF wage and one EPS wage per member per month. It is not yet confirmed whether EPFO will accept the split 16/14-day computation in Example 5 for September 2026, or will apply the new ceiling from the October 2026 wage month with an arrears adjustment. Employers should keep working papers for both methods and file according to the ECR validation and circular in force on the filing date.
(b) EPS eligibility of existing "EPS-excluded" members. Since 1 September 2014, anyone joining PF for the first time with wages above ₹15,000 has been PF-only, with no EPS. One view, reflected in several employer advisories, is that the revised ceiling now brings all members with wages up to ₹25,000 into EPS. The other view is that such members stay outside EPS unless the Pension Scheme is amended or EPFO opens an option window, because the 2014 exclusion was tied to the ceiling at the time of joining. The notification itself is silent. For employees joining PF for the first time on or after 17 September 2026 with wages up to ₹25,000, EPS membership is the position being followed in practice, subject to EPFO's implementation instructions. The EPS figures in Examples 2 and 5 are computed on that basis.
(c) Higher-pension members. Members who have validly opted to contribute to EPS on actual wages above the ceiling, following the Supreme Court judgment in EPFO v. Sunil Kumar B. (4 November 2022) and the related EPFO process, are not affected by the revised split.
9. Conflicting positions employers must note
Re-cutting a fixed CTC vs Section 124 of the Code. Section 124 says that no employer shall, "by reason only of his liability for the payment of any contribution", reduce, directly or indirectly, an employee's wages or the total quantum of benefits under the terms of employment. Where the employment contract fixes gross salary and treats employer PF as a separate cost, reducing gross salary to absorb the higher employer share is exposed to challenge under Section 124. Where the contract clearly fixes CTC inclusive of employer PF, as in Example 3, the employer can argue that total remuneration has not been reduced. That argument is not free from doubt, however, because Section 124 also protects the "total quantum of benefits ... express or implied", and the provision has not yet been tested in the courts. Before absorbing the employer share within CTC, employers should check the wording of appointment letters.
Raising wages above ₹25,000 to avoid coverage. For a genuine new joiner with no prior PF membership, wages actually fixed above ₹25,000 keep the employee excluded. Increments, splits or restructuring timed around 17 September 2026 only to keep employees above the ceiling, or to shift pay into excluded allowances, are open to scrutiny. The 50% add-back in Section 2(88) and Section 124 both apply, and the authorities can assess dues, interest and damages under Sections 125, 127 and 128.
10. Compliance timeline, interest, damages and penalties
Due date. Contributions for a wage month, including the pro-rata September 2026 contribution for newly covered employees, must be remitted with the ECR by the 15th of the following month. For September 2026 that is 15 October 2026.
Interest (Section 127). Delayed payment of any amount due under the Code attracts simple interest at 12% per annum from the due date to the date of payment. This rate was notified by the Ministry of Labour and Employment on 29 May 2026, together with the earlier ceiling notification.
Damages (Section 128). For delayed or short remittance, damages can be levied at the rates specified in the PF/EPS/EDLI schemes, on top of interest. Damages are discretionary and depend on the period of delay.
Assessment (Section 125). If eligible employees are not enrolled, or contributions are paid on a lower wage base, the authority can determine the dues. This includes arrears from 17 September 2026, and it can cover employees engaged through contractors, for whom the principal employer is ultimately liable.
Prosecution (Section 133). Failure to pay contributions is punishable with imprisonment up to three years. Where the employee's share has been deducted from wages but not remitted, the minimum term is one year, with a fine of ₹1,00,000. In other cases a lower minimum term applies, with a fine of ₹50,000. Deducting the employer's share from an employee's wages is separately punishable with a fine of up to ₹50,000. Section 134 provides enhanced punishment for repeat offences. Under Section 135, where the employer is a company, every person in charge of and responsible for the conduct of its business is also liable. First offences punishable with fine only, or with imprisonment of up to one year and fine, can be compounded under Section 138.
Cushion for employers: PMVBRY. EPFO has pointed employers to the Pradhan Mantri Viksit Bharat Rozgar Yojana. It gives an employer incentive of up to ₹3,000 per eligible additional employee per month, for 2 years in non-manufacturing and 4 years in manufacturing establishments, subject to Aadhaar-seeded UAN, KYC, timely ECR filing and the scheme's conditions. The incentive is for additional hires made between 1 August 2025 and 31 July 2027. Existing staff who come under PF only because the ceiling has been raised will ordinarily not qualify, so eligibility has to be checked establishment by establishment.
ESI is unaffected. The notification relates only to Chapter III (EPF). The ESI wage ceiling of ₹21,000 under Chapter IV is unchanged. For how the Code changed ESI applicability, read our article ESI Applicability Redefined: What Employers Must Know After 21st November 2025.
11. Action checklist for employers and payroll teams
- Recompute each employee's statutory wages under Section 2(88), applying the 50% add-back, instead of relying on the "Basic" figure.
- List all non-members with statutory wages of ₹15,001 to ₹25,000. Check for an existing UAN, generate or link it, complete KYC and e-nomination, and enrol them from 17.09.2026, or from their actual date of joining if later.
- List existing members whose contribution is capped at ₹15,000 and change the payroll PF wage cap to ₹25,000 from 17.09.2026.
- For members contributing on actual wages, update the EPS/EPF split and EDLI wage, and settle the EPS-eligibility question for each member (Section 8(b)).
- Prepare September 2026 payroll on the split basis. Keep the alternative working ready until the EPFO circular is out, and file the ECR by 15 October 2026.
- Review appointment letters before absorbing the higher employer share within CTC (Section 124).
- Get employee-wise coverage statements from contractors; the principal employer remains liable.
- Check PMVBRY eligibility for newly covered employees.
- Tell affected employees about the lower take-home and the higher PF and pension build-up. Update offer-letter and CTC templates.
12. Frequently asked questions
Has the PF rate gone up? No. The rate is still 12% (10% for notified classes). Only the wage ceiling has changed.
My basic pay is ₹40,000 and my PF is deducted on ₹15,000. Will it now be ₹25,000? Yes, from 17 September 2026, if your employer restricts PF to the statutory ceiling. Your deduction goes up from ₹1,800 to ₹3,000 a month.
Can an existing member opt out because take-home is falling? No. Membership is compulsory and continues even if wages later go above ₹25,000.
Can an employee choose to contribute less than 12%? No. An employee can voluntarily contribute more (VPF), but the employer is not obliged to match anything beyond the statutory share (Section 16(1) proviso).
Is there any arrear for earlier months? No. The notification operates from 17 September 2026 only.
References
Code on Social Security, 2020: Sections 2(88), 2(89), 16, 124, 125, 127, 128, 133, 134, 135, 138. Ministry of Labour and Employment Notification S.O. 5109(E) dated 17.09.2026. Notification S.O. 2702(E) dated 29.05.2026 (superseded). Union Cabinet decision dated 16.09.2026. EPFO Regional Office (Thane South) press release dated 17.09.2026 (PMVBRY, interest rate 8.25%). Income-tax Act, 2025: Sections 17(1)(h), 123 and 202, Schedules XI and XV, as amended by the Finance Act, 2026. EPFO v. Sunil Kumar B., Supreme Court, 04.11.2022.
This article is for general information and reflects the law and official communications as on 24 September 2026. EPFO's operational circular on implementing the revised ceiling was still awaited on that date. Readers should check the latest EPFO instructions and take professional advice on facts specific to their establishment.
Comments
Post a Comment