Understanding PF Deductions: Should We Cap at Rs. 6500 or Use Actual Basic Salary?

In our organization, we are deducting PF from the Basic Salary (inclusive of DA). If the salary exceeds Rs. 6500 (>=6500), whether we can deduct PF contribution for an amount of Rs. 6500/- only or for the actuals (for example, Rs. 7250/- as basic salary). Also, on the part of employer contribution, what should be done? Please help.

Regards,
Prabhu R.

Hi Prabhu,

Employees have to pay 12% on their actual Basic+DA, but the employer can freeze it to $6,500.

If salary i.e. basic+DA exceeds 6500, then legally you are not bound to pay employer share on full. It is your choice to deduct on 7200 or on 6500. In that case, you can freeze it on 6500.

Dear Prabhu,

I agree with MalikJS and Rajsekar. Your management can avail the ceiling for 6500/- and restrict it to that amount.

Regards,
KIRAN KALE

Firstly, PF is calculated upon wages (basic + D.A. & Cash Value of food concession + Retaining allowances). The rate of contribution at present is 12% by the employer and employees, 0.5% towards E.D.L.I. contribution, and 1.15% towards administrative charges by the employer.

Let's take an example:
If the wage of A is 6000, then the employer's contribution towards the PF Scheme + Pension Scheme will be 12% of 6000 = 720.
If the wage of A is 6500, then the employer's contribution towards the PF Scheme + Pension Scheme will be 12% of 6500 = 780.
If the wage of A is 7000 (more than 6500), then the employer's contribution towards the PF Scheme + Pension Scheme will still be 12% of 6500 = 780. This means employers are not liable to pay more than 780 when the wage is revised (more than 6500).