Understanding Salary Deductions: How Are PF, HRA, DA, and Medical Allowances Affected?

Can someone tell me if PF is deducted from the gross salary of an employee, and what about deductions on HRA/DA/Medical Allowances if these are included in the salary?

Regards,
Charanjeet Singh

In general, PF is deducted on Basic + DA. However, certain other allowances also attract PF, such as:

- Personal Pay
- Service Weightage

Therefore, if you have such allowances in your pay packet, please seek the advice of your legal counsel and act accordingly.

Regards,
M.V. KANNAN

Charanjeet,

One PF official had said, "even if Basic+DA" is less than Rs 6500, the other allowances (for example, residual pay) should be added to reach Rs 6500. For instance, if a person's Basic+DA is Rs 4000 and his other allowances are Rs 6000, then his total gross is Rs 10000.

Therefore, PF should be calculated on Basic+DA+other allowances, totaling at least Rs 6500.

Regards,
Mahesh

In general, PF is deducted on Basic + DA. The PF limit (Basic and DA) is up to Rs. 6500 only.

Regards,
Sandeep Gowda

PF shall be deducted on Basic + DA and not on the gross salary. Allowances do not attract PF deduction.

Thank you.

Provident Fund Deduction Clarification

PF is deducted on Basic + DA. If (Basic + DA + Other Allowance) is equal to the Minimum Wages, then deduct on Basic + DA + Other Allowance.

Regards,
Manish

If the basic salary is 10,000, and we are deducting PF on 6,500, then if someone works for 28 days, how will we calculate their basic? Should we consider the basic on a 10,000 basis or on a prorated basis of 6,500 divided by 30 and multiplied by 28? Kindly suggest.

Hi Sheetal, I want to know how you calculated the basic salary from the gross salary and what the last limit of the basic salary is.
Regards.

Usually, Basic is calculated at 40% of Gross or CTC. It purely depends on the company's policy. Of course, on Basic, PF is calculated at 12%.

Regards,
Mahesh

Dear All,

For the benefit of all members, I give below the interpretation given by the Regional PF Commissioner, Chennai. All along, I have been deducting PF on Basic + DA only. I have worked in AP, Karnataka, Maharashtra, and Gujarat before coming to Chennai.

The Regional PF Commissioner of PF has sent us a 7A notice and is claiming EPF contribution on 70% of Gross salary (the rest 30% is HRA, which is the only exempted component). Such 70% of Gross salary should not be less than Rs. 6500/-. The matter is under process, but this is the status as given by the Regional Commissioner of EPF.

All along, I have known that EPF contribution on Basic + DA is wrong as per the explanation given in the EPF Act for salary. But the contention of the Regional Commissioner that 1. 70% of Gross salary should not be less than Rs. 6500/- is disputable, and 2. Assuming 30% to be HRA when IT allows 50% HRA in metros and 40% in other cities is also disputable.

Regards, N Ramamurthy

PF deduction is not for the Gross Salary; it is only for Basic Allowance (BA) + Dearness Allowance (DA). However, certain other allowances also attract PF.

PF contributions are to be paid at 12% of the basic wages, dearness allowance, and retaining allowance, if any, payable to the employees per month. The wage limit is Rs. 6500 per month. The PF contributions are payable on the actual basic, dearness allowance, and retaining allowance earned by an employee.

If an employee's basic + DA is Rs. 10,000, and if he has actually worked for 28 days in a particular month, if the salary earned by him is more than Rs. 6500 (calculating his salary on the basis of Rs. 10,000 + DA), then PF contributions are to be calculated and restricted to Rs. 6500. If the actual salary earned by him in a particular month is less than Rs. 6500 on account of his absence, then in such a case, PF contributions are to be paid on the actual salary earned by him and not on Rs. 6500.

Judgments on Provident Fund Deductions

Please note there are two judgments: Group 4 Securitas Guarding Ltd & Another Vs. EPF Appellate Tribunal & Others (WP (C) No. 4408/2000 and 4433/2000 dated 20.09.2011) and Surya Roshini Limited Vs. EPF and Another.

The following are the briefs of the above cases:

1. HRA, Overtime Allowance, Bonus, Commission, or any other similar allowance are not covered in the definition of Basic wages.

2. Special Allowance, Dearness Allowance, Conveyance Allowance, and other allowances, if paid universally to all the employees, would be treated as part and parcel of basic wages.

Therefore, if any salary is paid to all the employees as per point no. 2, then that component attracts Provident Fund.

HRA is exempted up to 50% of the Basic salary, overtime is exempted if paid as per law (double the salary for extra work done), bonus if paid annually, and commission has to be related to some output.

The general principle is all amounts paid/paidable on a monthly basis are taxable under Provident Fund except the components with proper exemptions.

Regards,
Alex Antony
Director
Benignity Organisation Support Services Pvt Ltd