Understanding PF Structure: Why Does It Vary with Salary and How to Calculate It?

Hi, I found the PF differs from person's salary. Is it true? Can I know the actual PF structure? How to calculate?

Hi!

PF is calculated as 12% of the basic salary. Some companies include both parts, i.e., the employee part and the employer part, in the CTC, while some include only the employee part. It varies from organization to organization.

Wishes,
EAFIL

Yes, dear. Because the basic salary of each person varies, the PF amount differs from person to person. If it is CTC, then PF means 24% of your basic salary, and if it is gross salary, then it is 12% of your basic salary.

Regards,
Sanjeev Sharma
Blog: http://sanjeevhimachali.blogspot.com/

Thanks for the reply, but here one question arises: What is the difference between Gross salary and CTC? As far as I know, net is the take-home salary, and gross includes all DA, TA, HRA, etc.

CTC is the cost to the company; it includes all those above costs which the company is paying, like on computers, AC, etc.

Then, what is the difference between them? I'm working in a software company, where they deduct Professional Tax. How is it calculated? Because as per the government, 0 is the value till a salary of Rs 5000. Then why is Rs 35 used to be deducted, which I found in my office?

Hi,

PF differs from person to person simply because the salary differs from person to person.

When your establishment is covered under EPF and (Misc Provisions) Act, the employer is entitled to deduct 12% of (Basic+DA) component of your salary and is obliged to contribute an identical amount from the employer's side. The sum is then deposited in your PF account, maintained in the office of the Regional Provident Commissioner's office or in the Trust especially established by the employer and approved by the PF authorities. Therefore, 12% of different salary levels will yield different amounts, right?

Now, to address some other questions that have been raised in this thread:

1) Gross Salary should include money payments made to the employee by the employer either on a monthly or annual basis.

2) This may also include indirect payments like the employer's contribution to PF, Bonus/ex-gratia, or such other indirect payments.

3) CTC should actually mean the Gross Salary PLUS all other employee-related expenses (apportioned to an individual employee) like uniform, cost of company-provided transport, subsidy provided in canteens for food, Annual functions, etc.

I am of the opinion that it is wrong on the part of the employer to negotiate salaries based on CTC. Negotiating a gross salary is more realistic as other items of employer's expenses included in the CTC, though real costs, are incidental expenses of which the individual may be a beneficiary. These do not reflect the cost to the company of the individual's worth in terms of his competence.

Again, CTC is a matter purely of INTERNAL purposes like budgeting. In fact, the law states that it is WRONG for the employer to recover the employer's share of PF contribution from the employee's salary. When the CTC publicly claims that the employer's share of PF is part of CTC, one could get into trouble with the law.

Having said all this, I also bring to your notice that only employees in receipt of a basic wage/salary less than Rs. 6500/- per month are covered under the act.

I hope the issue is clear now. For specific queries, you are welcome anyway!

Regards,

Samvedan

November 25, 2006