Why provident fund limit hiked: What will change now

The Narendra Modi government has a less-than-spectacular mandate this time. Is this why it is increasing the Provident Fund limit after leaving it untouched for 10 years? Provident fund is a sensitive issue, and it can make a government win or lose an election. The Union Finance Ministry may hike the provident fund limit after keeping it at Rs 15,000 for a decade. The government may raise the ceiling to Rs 25,000. The Ministry of Labour and Employment has prepared the proposal accordingly. 

By revising the PF limit upwards from Rs 15,000 to Rs 25,000, technically, the government aims to expand the scope of social security. But politically, the Modi government must have in mind the number of votes this jump in PF is going to fetch the BJP in the coming elections.

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

Look at the screen to know when and how the wage ceiling increased.

Under the Provident Fund rules, the employee and the employer are each mandated to contribute roughly 12% towards the Employees' Provident Fund 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 funnel-led into the Employees' Pension Scheme, whereas the remaining 3.67% is directed to the Provident Fund account.

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

What will change with provident fund limit increased

Upon establishing 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 union government, state governments, corporate social responsibility funds, and contributions from aggregators or through penalties imposed under the code.

The potential hike in the provident fund limit and establishment of a comprehensive social security fund mark significant steps towards enhancing financial security for employees and unorganised workers across India. And as said earlier, it’s also a vote-fetching proposition.