Confused About PF Calculation: Should It Be Based on Basic or Basic+DA? Seeking Clarity from HR Pros

Dear HR professionals,

I am a fresh MBA graduate who recently joined an MNC. This is regarding PF calculation; I read that the PF is calculated on Basic as defined:

"(b) 'basic wages' means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include--

(i) the cash value of any food concession;

(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment."

In my company, the PF is calculated at 12% on Basic+DA, and my seniors support this. Kindly enlighten me on what the correct method is.

Sincerely,

Spear

Hi Sayed Iqbal,

If your company is calculating PF at 12% on Basic Wages + DA, then they are making the correct calculation. Kindly specify your point of objection.

Thanks and regards,

Sayed Iqbal

Email: [support@excelconsultancyservices.co.in](mailto:support@excelconsultancyservices.co.in)

Thank you, Mr. Sayed,

My only confusion is that in the definition, it's given that no Dearness Allowance shall be considered for the purpose of calculation. Please clarify.

Spear

No, Mr. Spear,

If your company is paying DA to the employees, then it shall be included while calculating PF contribution.

Regards,
Amit Seth.

Thank you, Mr. Amit,

I am delighted to receive advice from you seniors. Please note that in the definition, it is very clearly mentioned to exclude any DA paid. Please suggest if any amendments need to be made to this definition.

Hi Spear,

Kindly refer to Section 6 under the Employees' Provident Fund & MP Act, 1952, which says: "The contribution which shall be paid by the employer to the Fund shall be twelve percent of the basic wages, dearness allowance, and retaining allowance (if any) for the time being payable to each of the employees (whether employed by him directly or by or through a contractor), and the employee's contributions shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding twelve percent of his basic wages, dearness allowance, and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section."

For further clarification, kindly visit Excel Consultancy Services at http://www.excelconsultancyservices.co.in