Can Someone Clarify How Leave Encashment Works with PF Contributions?

Hi to everyone,

I am new to this forum. Please, can anyone explain to me the concept of leave encashment under the PF Act? As per my knowledge, the employer's contribution of 12% is divided into 8.33% for the pension scheme and the rest for PF.

Now, if an employee gets Rs. 8500 for leave encashment, and for example, his basic salary is Rs. 6000 and DA is Rs. 500 per month, then the PF should be deducted on the total of (6000 + 500 + 8500), i.e., Rs. 15000. 12% of it, Rs. 1800, is now the sum of Rs. 541 (maximum contribution under the pension limit up to Rs. 6500) for the pension, and the rest, Rs. 1259, is for PF.

Please clarify this concept for me. I would be thankful to you.

With regards,
Richa Jain
CA final student
E-mail: richajain_26@rediffmail.com

Hi Richa,

Whatever the leave encashment amount may be, a maximum of Rs. 541/- only will go to his pension fund. The remaining amount will go to the PF. In any case, the amount in the pension fund will not exceed Rs. 541/-, even if you pay leave encashment along with salary/wages.

I hope the above information satisfies your query. It's great to have written communication, at least, with a CA.

Santosh Iyer
Email: santosh_iyer79@rediffmail.com

Hi Santosh,

Thank you for replying. Could you please clarify the concept of leave encashment for PF? There are several issues surrounding this topic, such as:

- Is leave encashment restricted to only Basic+DA?
- What should be done if the accumulated leave on which encashment is received is more than 30 days?
- Is it applicable with retrospective effect?

With regards,
Richa Jain

Hi Richi,

Yes, leave encashment is done on (BASIC+DA) only; however, some companies have different terminologies, i.e., (BASIC+FDA+VDA), BASIC+SP.ALL (DA). In no condition would any other allowance be added for the calculation of PF.

Regarding the accumulation of leaves, it depends on the leave policy, which varies from company to company. Some companies lapse the leaves at the end of the year, some companies carry forward half or some number of leaves, while others carry forward all the leaves.

Santosh Iyer
santosh_iyer79@rediffmail.com