Provident Fund Alert: Your PF balance could increase by 66%, here's how

As per the EPFO rules, the entire PF withdrawal is tax exempted and hence this rise in EPF balance due to the implementation of the new wage act is going to provide huge relief to EPF account holders.

This would become possible as the monthly EPF contribution of an employee will go up, leading to a higher EPF balance at the time of retirement.

Let's assume an EPF account holder is 35 years old and monthly salary is Rs 60,000. In that case, if the yearly increment is assumed at 10 per cent, keeping current 8.5 per cent PF interest rate for the coming period, then due to the new wage code implementation, one's net PF balance at the time of retirement will be Rs 1,16,23,849.

Comparing this PF balance with the current EPF contribution, which is not more than 30 per cent in the majority of the EPF account holders, the EPF balance post-retirement of the same employee in the current circumstances will be Rs 69,74,309.

Under the Code on Wages 2019, wages will include three components - basic pay, (inflation-linked) dearness allowance and retention payment. While it envisages all remuneration provided to employees, it excludes bonuses, pension and PF contributions, conveyance allowance, HRA or housing benefits, overtime, gratuity, commission, retrenchment compensation and such other things.

The new wage code mandates that basic pay will have to make up 50% of employees' CTC. Allowances to employees, like leave travel, house rent, overtime and conveyance, will have to be limited to the remaining 50% of CTC. If any of these exemptions, in aggregate, exceed 50% of the CTC, the extra amount will be deemed as remuneration and will be added to the wages.

As per the new wage code, gratuity will also undergo certain changes. Gratuity will have to be calculated on the basis of a larger base, including basic pay as well as other allowances of wages such as travel, special allowance, etc. This will add to the gratuity cost of companies.