Union Budget 2024: Finance ministry may hike provident fund limit after a decade

The Union Finance Ministry may hike the provident fund limit after keeping it at Rs 15,000 for a decade. According to a report in CNBC Awaaz, the government may raise the ceiling to Rs 25,000. The Ministry of Labour and Employment has prepared the proposal accordingly.

A Provident Fund (PF) is a savings and retirement fund backed by the Central government. It is typically established and contributed to by salaried employees and their employers. Its basic initiative is to offer financial security to employees during their retirement years. Provident Fund (PF) has always been considered as one of the safest and tax-effective retiral benefit for employees. 

With the revision, the government aims to expand the scope of social security.

The Centre last amended the ceiling for contributions under the Employees' Provident Fund in 2014. Under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) and the Employees' Provident Fund and Miscellaneous Provisions Scheme, 1952 (EPF Scheme), the PF amount was increased from Rs 6,500 to Rs 15,000, with effect from 1 September 2014. 

PF Rules: When and how much did the wage ceiling increase

Duration    Wage Ceiling (per month)
1 November 1952 to 31 May 1957    Rs 300
1 June 1957 to 30 December 1962    Rs 500
From 31 December 1962 to 10 December 1976   Rs 1000
11 December 1976 to 31 August 1985    Rs 1600
From 1 September 1985 to 31 October 1990    Rs 2500
1 November 1990 to 30 September 1994    Rs 3500
1 October 1994 to 31 May 2011    Rs 5000
From 1 June 2001 to 31 August 2014    Rs 6500
From 1 September 2014 to present    Rs 15000

Under the Provident Fund rules, contributions are determined based on an employee's basic salary, dearness allowance, or any other allowance. Both the employee and employer are mandated to contribute roughly 12% each towards the Employees' Provident Fund (EPF) account. The entirety of the employee's contribution is allocated to the Provident Fund account. On the other hand, the employer's share of 8.33% is funneled into the Employees' Pension Scheme, whereas the remaining 3.67% is directed to the Provident Fund account.

Earlier, the central trade unions called for setting up a government-sponsored social security fund in the upcoming Budget in a bid to include millions of unorganised, gig, platform and agricultural workers, as envisaged under the Code on Social Security 2020.

“The Union government-sponsored social security fund for unorganised workers will provide them with defined universal social security schemes. These include minimum pension and other medical and educational benefits,” said Amarjeet Kaur, general secretary, All India Trade Union Congress.

“The social security fund for the unorganised and agricultural workers has to be set up. Special schemes will ensure occupational health and safety measures for workers, especially for waste recyclers, salt pan workers and glass bangle makers,” a statement released by the 10 central trade unions read after meeting Union Finance Minister Nirmala Sitharaman in June.

As per news reports, upon the establishment of the fund, the Centre will be able to efficiently distribute benefits to unorganised workers, consolidating various social security schemes such as old-age pension, provident fund, health, housing, and education into one comprehensive system. This restructuring will streamline the delivery of benefits through the social security fund.

Following the absorption of the Unorganised Workers’ Social Security Act in 2008, Section 141 of the Code on Social Security 2020 outlines the creation of the social security fund. This fund will receive financial support from the central government, state governments, corporate social responsibility funds, and contributions from aggregators or through penalties imposed under the code.