Can Companies Legally Set a PF Ceiling Above Rs. 6500 but Below Basic Salary?

It has been widely observed that companies put Rs. 6500/- as the upper limit for giving PF on basic salary. My question is, can we set Rs. 10,000 or any amount over 6500 but less than the actual basic salary as the ceiling for PF for employees whose salary is above 6500/-? Is it legal?

Rolly

Hi Rolly,

Can you clarify your requirements as I am not able to understand them?

As far as the PF ceiling is concerned, the limit of the basic salary is up to 6500 rupees. If any person's basic salary is more than 6500, then the PF will be deducted only up to 6500.

Regardless of the actual basic salary amount, whether it is 7, 8, 9, or any other figure in thousands, the PF deduction can only be up to a ceiling of 6500.

Regards,
Amit Seth
Email: amitmhrm@sify.com

Hi Amit,

Thank you for the reply. You are correct that the ceiling is 6500/-. I would like to add to your point - we can either pay PF on 6500/- or on the actual basic salary, even if it is greater than 6500/-.

My question is, suppose someone is earning 20,000 as basic. Can we pay him PF on 10,000 basic?

Hi,

You can deduct PF on actual basic and pay an equal amount into the employee's PF Account. It is legal.

Hope it helps.

Regards,
Richa

Dear Rolly & Richa,

The wage limit under the EPF Act to cover an employee is Rs. 6,500 per month. Any employee drawing wages more than the above amount will be termed as an excluded employee, provided that he is not already a member of PF. If he is already a member of PF, then his PF deduction will be based on Rs. 6,500 only.

Voluntary higher contributions are also acceptable at the joint request of the member and the employer. However, the rate of contribution is 10% in respect of the following categories of establishments:

- Any establishment covered prior to 22.9.97 in which less than 20 persons are employed.
- Any sick industrial company as defined in Clause (0) of Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act 1985 and which has been declared as such by the Board for Industrial and Financial Reconstruction.
- Any establishment which has, at the end of any financial year, accumulated losses equal to or exceeding its entire net worth.
- Any establishment engaged in the manufacturing of (a) Jute, (b) Beedi, (c) Brick, (d) Coir (other than the spinning sector), (e) Guar Gum Industries/Factories.

I hope this information clarifies the situation.

Regards,

Amit Seth.

Dear Amit and Richa,

Your explanations are welcome; however, they do not include an answer to my question. Kindly find out if possible...

I simply wanted to know if an employee's basic salary is 20,000, can the organization pay him PF at 10,000 basic?

Dear Rolly,

If the current salary is Rs. 20,000, then you can have a basic of Rs. 10,000 and can deduct the PF on this amount with mutual concern.

Hope this answers your query. :)

Regards,
Ruchi

Dear Rolly,

Just go through my above post; it very clearly mentions that voluntary higher contributions are also acceptable at the joint request of the member and the employer. However, the rate of contribution is 10% in respect of the following categories of establishments:

I hope it will definitely help you out to clear your query.

Amit Seth.

Hi Amit,

Thank you for the patience. I know higher contributions are possible. My question is not about higher contributions but about whether a person having a 20K basic can pay PF on a 10K basic with the mutual consent of the employee and employer or not? I guess I have made myself ample clear? Please reply specifically; otherwise, your answer is good for general guidelines knowledge but does not solve my purpose.

Rolly

Hi Rolly,

Definitely, he can go ahead with the same, but only with the mutual consent between them. He will not get interest on the amount that is being contributed after the ceiling, i.e., 6500/-.

Regards,

Amit Seth

Dear Rolly,

If I have understood you correctly, yes, you can calculate PF on the gross salary of Rs. 10,000 (with employer-employee consent), but while putting the breakup, your calculations would be:

PF: 12% on Rs. 10,000/-
Pension Fund: 8.33% of 6500/- will come to Rs. 541/-
EPF: will be Rs. 659/-, i.e., the difference between 12% and 8.33%.

Hope this clears things up.

Regards,
Sashmita

Dear Rolly,

You are bound to deduct up to Rs. 6,500/- as per the EPF Act. However, if an employee is drawing more than Rs. 6,500/-, then at the joint request of an employer and employee, he can be covered under the EPF Act.

For example, if a person is drawing a salary of Rs. 20,000 and you want to deduct at Rs. 10,000/-, then the same is permissible provided both employer and employee agree to it.

P. M. Patel

PF Deduction for Employees with Basic Salary of Rs. 10,000

In case any employee (not a member of PF) has a basic salary of Rs. 10,000, should PF be deductible or not? Is the employer company bound to deduct PF on this?

Thank you.