Is PF Deductible from Special Allowance? Seeking Legal Insights and Case Laws

X Ltd. provides salary under three broad heads: a) Basic Salary, b) HRA, and c) Special Allowance. The question is whether PF is liable to be deducted on the Special Allowance.

a) If the answer is yes, why is it deductible?
b) Do we have any case law on the subject matter to support the case?

I am looking forward purely from the Legal Perspective as per the definition in the PF Act.

Vineet Agarwal
vineet.agarwal@spil.co.in

Dear Vineet,

PF authorities object to special allowance because this allowance is not clearly defined. If you had specified it clearly, such as conveyance allowance or medical allowance, they would not have objected. For special allowance, they require PF contribution.

Thanks,
J.S. Malik

I beg to differ from the views expressed. I am exploring purely from the legal, i.e., judgments of the court as well as the definition of the Basic Wages as defined in the EPF Act.

We have to understand the definition of 2-b of the EPF Act as well as judgments pronounced by the Honorable Supreme Court of India in the case of Manipal Academy Vs. PF Commissioner, Bridge and Road Co. Case, and other leading judgments in the case. If you see the definition of Basic wages is provided means all emoluments... but does not include certain items as stipulated in clauses i), ii), and iii. The actual bone of contention is Clause ii. PF is to be deductible on special allowance as it falls in the ambit of the 2b of EPF Act.

Spl allowance is considered as wages for the purpose of PF, but it is subject to a total amount of Rs. 6500/-. If your basic salary + DA and special allowance amount to more than Rs. 6500/-, the additional amount exceeding Rs. 6500/= is not required to be considered for PF contribution by the employer.

Ak Malhotra
Senior General Manager
Dharampal Satya Pal Limited

Mr. Malhotra, I agree with your words. The actual question lies in whether X Ltd is deducting PF on the complete basic amount irrespective of the limitation of Rs. 6500/- for PF deduction. What are the ways out so that the emoluments do not come under the ambit of the definition of wages as stipulated in section 2b of the PF Act? Your kind views are highly appreciated.

Vineet Agarwal
Vineet.agarwal@spil.co.in

I want to clarify the meaning of the statement. If the sum of the basic salary, DA, and special allowance is equal to or greater than 6500, then the employer is required to deduct from the special allowance.

I want to clarify the meaning. If the sum of the basic salary, DA, and special allowance is equal to or more than 6500, then the employer is required to deduct EPF on the special allowance.

Special Allowance Disputes

Special allowance has often been disputed throughout various cases in different contexts. The act does not provide for remittances or deductions on the special allowance. It is merely a tool for the enforcement machinery to impose provisions based on their personal understandings.

I also agree with Vineet's findings. For example, an establishment could pay a basic salary of 1000/- and a special allowance of 4000/-. Such scenarios create conflicts; however, deserving cases must be handled in accordance with the Principal Act of 1952 and not solely based on the judgments of a single judge in a high court.

Each legal matter has different perspectives and merits. This is all I can comment on based on the brief description of the case.

Thanks and regards,

Prasiddh

[Phone Number Removed For Privacy Reasons]

It is advisable to bifurcate the PF amount from the Special Allowance, as this helps the employee in Tax Saving since PF does not count towards Tax. So, it's good to deduct PF from the Special Allowance.

Tax implications are the same for Basic Salary and Special Allowance as both are subject to tax. Legally, PF is also deductible on Special Allowance.

Regards,
Vineet

If the situation is in the absence of DA, would the SP allowance be eligible for PF deductions? Please help me out with this.

Our company had calculated HRA at 40% and paid the PF accordingly. Now, the PF office is asking to reschedule the payment structure to HRA 20%, and for the remaining 20%, pay PF. To avoid this, could you please suggest any allowance to skip PF?

Respected All,

Please let me know what special allowance is, why it is deducted, and on what basis it is deducted. Also, please provide a brief explanation on special allowance deductions. Your assistance will be greatly appreciated.

Thank you!!

Regards, Shahnaz.