Two new wage code rules that could hurt salaried employees

Two rules that may silently harm salaried employees after the implementation of the new Wage Codes.

Rule #1: ₹2.5 lakh #EPF contribution cap
If your own contribution to EPF exceeds ₹2.5 lakh in a financial year, the interest earned on the excess amount becomes taxable, for life.

Rule #2: ₹7.5 lakh #Employer contribution cap
If your employer’s combined contribution to EPF, NPS & Superannuation fund exceeds ₹7.5 lakh per year,
The excess is treated as a taxable #perquisite and taxed at your slab rate.

As these contributions are linked to Basic salary, which would become 50% of the CTC, the new wage structure increases the probability of breaching these caps.

Fun fact - These limits haven’t changed for years, even as salaries have gone up significantly.

With #Finfluencers painting the government Red, the government has announced an Escape route that can help everyone increase their take-home Salary!
The government will now allow employees to restrict EPF contribution to 12% of the statutory wage ceiling of ₹15,000.
That means:
Even if your Basic is ₹1 lakh
You can choose to contribute only ₹1,800 per month instead of ₹12,000
Until now, this option was usually available only at the time of joining, and many employers discouraged it.

Should you opt for the minimum ₹1,800 EPF contribution?
My view: Generally, no.
Here’s why:
🔹 Forced savings matter
Most people live from one salary SMS to the next. EPF ensures long-term discipline, especially in a country with no meaningful #SocialSecurity.
🔹 Lower EPF doesn’t always mean higher net income. Remember the employer's contribution to EPF remains tax-free, until it breaches the Rule 2 mentioned above
Scenario 1 - Basic Salary of 1 lakh, Employee opts for 12% EPF deduction, company also contributes Rs 12000, which becomes tax-free
Scenario 2 - Basic Salary of 1 lakh, Employee opts for Rs 1800 EPF deduction, the company also contributes Rs 1800. Thus, the additional Rs 10,200 would be added to the salary be taxed as per the slabs!
Net result? Higher tax outgo, not necessarily higher wealth!

The new Wage Code would be implemented sometime next year; it's prudent to check for these rules and calculate what would work better! Remember, what works for one salary structure may hurt another.

And if you’re unsure, take advice; a guessing game won't help!