New EPF Rules Cap Mandatory Contribution at Rs 1,800; Higher Savings Now Voluntary

The central government has notified the Employees' Provident Funds (EPF) Scheme, 2026, replacing the nearly seven-decade-old EPF Scheme of 1952. While the new framework largely retains existing contribution rates and wage ceilings, it introduces a change that directly affects salary structures for millions of salaried employees.

Under the new rules, mandatory EPF contributions will be capped at Rs 1,800 per month for employees earning above the statutory wage ceiling. Any contribution beyond that will require the consent of both the employee and employer. The contribution rate itself remains unchanged at 12 per cent each from employee and employer, applied only on the statutory wage ceiling of Rs 15,000 per month.

This means that for an employee with a basic salary of Rs 60,000, the compulsory contribution can now be limited to Rs 1,800 instead of the earlier practice where many companies calculated PF on actual basic salary, resulting in deductions of Rs 7,200 or more. The change is expected to increase take-home pay for some employees and reduce mandatory provident fund liabilities for companies.

However, employees who prefer to contribute more towards their retirement savings can continue doing so, provided both parties agree. The option for higher contributions has not been abolished; it has become voluntary.

Financial experts note that while the increased take-home pay may benefit employees with immediate cash flow needs, reducing PF contributions could lead to a smaller retirement corpus over the long term. EPF remains a government-backed, tax-advantaged savings instrument with relatively attractive interest rates.

The new scheme also includes other changes not related to contribution rules, but the cap on mandatory contributions is the most significant for salaried employees.