The government may hike the threshold salary limit for provident fund contributions in a move that will bring cheer to millions of employees in the private sector. According to current norms, contribution towards provident fund is mandatory for those employees, whose salary is up to Rs. 6,500.
A hike in salary limit will not only help more people contribute toward their retirement benefits, but will also enable the Employee Provident Fund Organization (EPFO) to draw more long-term savings into its kitty. EPFO is a statutory body that manages provident fund contributions.
(Also read: Now on, know your current PF balance instantly)
Higher provident fund contributions will also help the government to lower its borrowing cost. At present, the EPFO invests a sizable amount of its kitty in government securities.
The Rs. 6,500 limit for PF contribution was last revised in 2001.
According to the current norms, 12 per cent of an employee's salary is contributed towards provident fund account. Another 12 per cent is contributed by the employer.
(Also read: EPFO to start online service for transfer claims soon)
Out of the 24 per cent around one-third of the total provident contribution (8.33 per cent of salary) goes toward employee's pension scheme. The government contributes 1.16 per cent of the overall salary towards the pension scheme as a subsidy.
The government had recently made more people eligible to avail healthcare benefits under the Employees' State Insurance (ESI). Earlier, workers with monthly salary up to Rs. 15,000 were eligible for ESI benefits. Now the salary cap has been increased to Rs. 25,000, making for people eligible for ESI benefits.
Every month, eligible employees contribute 1.75 percent of their salary and employers contribute 4.75 percent toward the ESI corpus.
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