In the case of PF, there is a ceiling of Rs 15000 on wages and the employers who do such bifurcation should understand that it is a matter of only Rs 1800 and by contributing on the entire salary subject to Rs 15000, they will be incurring a very small addition to their cost. Also remember that there are a number of employers who contribute their PF on amounts more than the ceiling of Rs 15000.
You said, there is no reason of bifurcating the salary components then could you please explain the below subject for my further knowledge.
1. Why income tax allows exemptions on different allowances like (conveyance,HRA,LTA) ?
2. Without bifurcating allowances how could we calculate tax ?
There are certain changes which are proposed.
Further, for PF calculation Basic+DA+Special allowance will be considered. (As per Supreme court recent guideline).
As far as concern to HRA, it'll be accounting as metro and non metro.
Let me take you to one leading case, Wockhardt Hospital, Hyderabad Vs Dep of Income Tax. The hospital had employed doctors as Consultants.They were subjected income tax deduction as if they are consultants. But the Income Tax department observed that these doctors are following the general rules of the hospital with regard to timing, leave rules, reporting and other hospital protocols and there were prohibitions with regard to private practicing. The DOT said that there existed employee employer relationship and the amount paid which has no connection with the amount of charges collected from the patients should only be regarded as Salaries and tax deducted accordingly. In this case we can find that whatever is paid as remuneration as per contract of service is the salary.
I repeat, the next battle will definitely be for a clarification on HRA part of salary. In my opinion HRA as part of salary should be included in salary for qualifying PF and Gratuity whereas HRA paid separately considering its need should be omitted.
I have explained the term in another thread. Please read that one along with this thread so that I don't waste my time and energy.