Understanding PF Coverage: Do Salaries Over 6500 Still Require Contributions?

Dear Seniors,

Please clarify one doubt about the PF. As per the PF Act, the ceiling is 6500/- (basic + da). If my salary is more than 6500/-, am I not covered under the PF Act? In that case, do I have to pay PF on 6500/- (Rs. 541/-) or not?

EXAMPLE:

My salary is 10,000/- (basic + da).

Am I covered under PF at this time or not?

Regards,

Srinivas B

Yes, ceiling is Salary+d.a. Rs. 6500/- with a 12% deduction on 6500/-. If the company has obtained approval from the EP commissioner for deductions above 6500/- and your salary is over Rs. 10000/-, then your deduction is 1200 @12%.

The company's contribution is: 8.33% for 541 and 3.67% for Rs. 659/- = 1200/-. :)

Dear Srinivas,

Although well defined by Mr. Bhardwaj, the employer may contribute towards the ceiling of the basic salary only, i.e., of 6500/-.

Regards,

Amit.

If the employees' contribution is not restricted to Rs 6500, then the employer should not restrict their contribution to Rs 6500. In the example, an employee is drawing Rs 10000, and they are contributing 12% on Rs 10000. Therefore, the employer should also contribute 12% of Rs 10000, and they cannot restrict their contribution limited to 12% of Rs 6500. Certainly, their contribution of 8.33% to the Pension Fund shall be 8.33% of Rs 6500, i.e., Rs 541, but their contribution to the Provident Fund should be Rs 659, i.e., Rs 1200 minus 541. Virtually, they will contribute the same amount (+ whatever administrative charges and EDLI as applicable) as is contributed by the employee.

However, for voluntary contributions by the employee, the employer has no obligation to contribute at the same higher rate of contribution. Voluntary contribution is a rate higher than the statutory contribution (of 12%) which an employee decides to contribute. If an employee decides to contribute 25% to EPF, then their salary will be deducted by 25%, but the employer's contribution will be limited to 12% only. This is different from the matter discussed in the post.

Regards,

Madhu.T.K

Although Madhu is correct, let me add something: if the employee is drawing Rs. 10000 (Basic+DA) and has never been a member of EPF, in that condition, there is no need to deduct PF even on the ceiling of Rs. 6500/- (Subject to declaration in Form 11 by the employee).

Best regards,
Khushbu

Hello,

Without engaging in debates with others, I would like you to consider the following potential scenarios and the corresponding responses.

- Mr. A, an existing employee of an organization, currently earning a salary (Basic+DA) below Rs. 6500/-, is required to be covered regardless.

- In the case of Mr. A, if his salary gradually surpasses the ceiling of Rs. 6500/- per month (Basic+DA), the company has two options:
- Maintain his membership (as per the rule of 'once a member, always a member' in the PF) and cap his contribution at the ceiling level, OR
- Continue contributing to PF based on his ACTUAL Basic_DA, irrespective of the ceiling, which must be a consistent rule for all covered employees. His PF membership does not cease just because his salary exceeds the ceiling.

- Then there is Mr. B, who joins the company with a salary (Basic+DA) exceeding the ceiling level (currently Rs. 6500/- per month). In this scenario, the company can choose to designate him as an excluded employee and not enroll him in the PF, as allowed by the Act and the Scheme. This involves a straightforward procedure. The company could alternatively extend PF membership to him but limit the contribution to the ceiling level. Again, such a policy should apply uniformly to all new employees with similar circumstances.

While these guidelines are in place, the company must make careful decisions regarding offering PF membership to new hires with salaries above the ceiling level.

I believe I have addressed all possible scenarios. Should there be further questions, I am prepared to address them.

Regards,
Samvedan
Nov 30, 2008

Hi,

Eventually, it is the ceiling limit that matters to the employee, employer, and the PF Authorities. As aptly said by Samvedan and Madhu, it is the discretion of the management to decide the contribution to be made. Practically, no management would agree to contribute 12% on the amount, i.e., above the ceiling limit.

M. Felix.C

Dear All,

I have some confusion regarding PF deductions. For example:

Case no. 1 (if the company considers the employee's salary in CTC):
For example, with a basic salary of Rs. 10,000/-, the following contributions will be made:
- A/C 1: 12% + 3.67 = Rs. 1200 + Rs. 659 = Rs. 1859/-
- A/C 10: 8.33% = Rs. 541

Case no. 2 (if the company does not consider the employee's salary in CTC):
For example, with a basic salary of Rs. 10,000/-, the following contributions will be made:
- A/C 1: 12% + 3.67 = Rs. 1200 + Rs. 239 = Rs. 1459/-
- A/C 10: 8.33% = Rs. 541

Note: The amount of Rs. 239 has been taken from the ceiling of Rs. 6500/- as basic + DA for the employer.

Are my calculations correct or wrong? Please comment.

Sanjeev Verma

Dear Sir,

If you have recently joined the company and your salary is fixed at Rs. 10,050, then the breakup to be exempted from ESI and PF is as follows:
Basic: 7000
HRA: 1000
MA: 1250
Travel: 800
Total: Rs. 10,050 per month.

In this case, the company does not need to pay you PF or ESI.

If you are already an employee of the company and your salary was recently revised so that your basic exceeds Rs. 6500, if you have been a member of PF, you have to continue to do so until you leave the company. You cannot be exempted. Otherwise, if your employer is not willing to contribute, you can pay your contribution. The only advantage is that you could get exempted from tax and receive some returns from the deposited money at a later stage. The employer can withdraw their contribution if your basic salary at the time of joining exceeds Rs. 6500.

Regards,
Ramamurthy R

Mr. Sriniwas,

It has two segments, i.e., this is bounded on the company to pay PF in the case when the employee's basic is less than Rs. 6500/-, but if the basic is more than Rs. 6500/-, then this is at the discretion of the management to go for PF deduction or not. If the company was contributing PF for an employee whose basic was less than Rs. 6500/-, and after some time if his basic got increased to more than Rs. 6500/-, then also, until that employee will leave the company, PF contribution will be deducted from the employee's salary.

PF contribution will be directly 12% of your (basic + DA), and the same amount will be contributed by your company.

Hope I cleared your doubts.

Regards,
Vishal Nagpal

Hi dear friend,

Please find the attached PPT for your reference.

Dear Seniors,

Thank you for your valuable suggestions. My query is regarding a salary of 10,000/- (basic+DA). At this point, I am not covered under the PF Act, and I do not need to make any contributions to PF. Is this understanding correct?

Regards, Srinivas B

Hi Srinivas,

If you want to become a member of PF, you can talk to your employer and let there be a 24% deduction from your salary. I don't know whether it is possible to do for a single employee, but I guess it may be done. Please correct me, guys, if I am wrong.

Regards,
Pervinder

Hi,

Is PF deduction mandatory for staff who are receiving 60% more than Rs. 6500/-? Can the company reject the proposal if the staff prefers? Is this possible? Can anyone advise on this?

Dear All,

Enclosed, please find the details regarding EPF.

Regards,
Amit Seth.