Understanding Allowances in Basic Wages: How Does Your Company Handle It Under the EPF Act?

Dear All,

Do allowances form part of basic wages as defined under Sec 2(b) of the EPF Act 1952? What is the practice of the company in case of CTC?

Apart from Basic Salary, Dearness Allowances (variable according to changes in the cost of living index or fixed as a percentage of basic pay) and Retaining allowances (allowances paid to employees to retain their skills, especially when there is no work due to any reason), are part of the salary for the purpose of EPF contribution. If the salary structure does not include any DA but includes something called 'special allowance', the same may also be treated as part of the salary for the purpose of EPF contribution. The reason being that special allowances may be interpreted as an allowance to meet changes in the cost of living and as such, it will have all the attributes of DA.

Regards,
Madhu.T.K

Thank you, Mr. Madhu T K,

There is a judgment of the Honorable Gujarat High Court, where it is held that all allowances except HRA and DA form part of Basic. I am yet to see whether it has been challenged or not. This was reported in 2004.