How Can We Design a Salary Structure to Minimize PF and Maximize Non-Taxable Income?

Dear All,

Can someone help me design a structure for an organization where they want to minimize the number of employees falling under PF and make their salaries non-taxable to the maximum? Also, from the organizational point of view, should we opt for PF or not?

Hi Anueha,

How are you doing today? In regard to your query, Anueha, it's necessary even from the organization's point of view to pay P.F. till the basic + D.A. is to the maximum of 6500/- p.m. After that, it's as per the company's policies. Furthermore, there can always be an introduction of various reimbursements to employees which are non-taxable, i.e., only FBT is charged on them. For example, medical, telephone, etc. (Again, as per what the company decides).

I hope I was of some help to you.

Dear Aashima,

I am fine and hope the same from you. Thanks for that prompt reply. Actually, my company is not willing to pay FBT, and we are also trying to maintain the Basic plus DA slab above 6600 in most cases, I mean wherever possible. But I need to know, is it good to introduce PF for employees or not? I mean, how can I educate people on the benefits and non-benefits arising from PF saving.

Thank you.

The enclosed PowerPoint presentation will help you.

Regards,
Sathya

Hi,

In my company, we have made PF optional. As per PF law, if the employee's basic salary is between 6K to 8K, then PF can be made optional.

Regards,
Veena

Dear Anueha,

You have raised a good point. When we come to PF, it's true that it's optional for employees when they cross 6k. However, it's always a benefit for employees to have PF.

1. Tax exempted
2. A small amount of savings is being accumulated without notice for the employee, which they can withdraw when they are either leaving the company or shifting to other places.
3. At a later stage, they will also have an option to take a loan on the PF.

Majorly, people from non-IT backgrounds prefer having PF. These days, IT professionals are also interested in it. Whenever you talk to employees about PF, always emphasize the long-term benefits. If the employee's salary is high, then you can refer to the tax benefits.

Hope it's useful for you. If you need anything else, just let me know.

Regards,
Vijaykanth

Dear Vijaykanth,

Thank you for that information. If an employee has been terminated or has left the organization without informing the employer, how can the employee claim their PF? To my knowledge, without HR's clearance, the paperwork for PF withdrawal or transfer cannot proceed further. Because of this, people prefer not to invest in PF when they are certain about their short tenure in the company.

Anueha