Understanding PF Act: What Items Are Excluded from Basic Wages and DA?

Understanding PF Act Exclusions

Under the PF Act, what items are not covered in basic wages and DA in the PF wages register?

Thanks and Regards,
Balamurugan.

My question is, suppose an employee is drawing a salary, i.e., Basic = Rs. 5000, other allowance = Rs. 5000, so the total salary is Rs. 10000. Here, Basic Rs. 5000/- includes basic pay & DA where PF contribution is Rs. 600. But here, are other allowances = Rs. 5000/- exempt from PF contribution or not? If it is exempt from PF contribution, then what items are exempt from the payment of PF?

Thanks for your reply.

Regards,
Balamurugan

Dear Jena, My question is, suppose an employee is drawing a salary, i.e., Basic = Rs. 5000, other allowance = Rs. 5000, so the total salary is Rs. 10,000. Here, the basic Rs. 5000/- includes basic pay & DA where PF contribution is Rs. 600. But, are other allowances = Rs. 5000/- exempt from PF contribution or not? If they are exempt from PF contribution, then what items are exempt from the payment of PF?

Thanks for your reply.

Regards,
Balamurugan

Your other allowance, i.e., Rs 5000/-, is exempted because PF is not calculated on allowances.

Regards, Amiya

A company called 'X' has coverage for all their employees under the ESI Act & EPF Act as applicable. A new employee is coming from company 'Y' who is joining for a basic salary of >6500. Should he be covered under the EPF scheme, or can he be exempted from EPF? Are there any legal obligations on the part of the employer of company 'X' to deduct EPF, even though the new employee's salary is >6500?

If the new employee can be exempted from EPF, is there any legal formality to inform the EPF office? What is the format, etc.?

Please clarify.

Regards,
Ramamoorthy.S

As you have mentioned that the employee's basic salary is more than Rs. 6500/-, and upon joining a new company, they deduct P.F. for all employees. In that case, certainly, the new company will deduct the P.F.

There is Form No. 11, which is to be filled out along with Form No. 2 (Nomination & Declaration form). In Form No. 11, we gather information about whether the new employee was a member of the P.F. in the last company. If the employee was a member of the P.F. in the last company, then it is the obligation of the new company to deduct the P.F. up to Rs. 6500/- (Basic + DA + Retaining Allowance, if any).

Regards,
Rajiv Singh

P.F. Calculation Based on Salary Components

P.F. is calculated based on Basic + D.A. If your salary (Basic & D.A.) increases above Rs 6500, you must calculate P.F. at 12% of Rs 6500 only, as per the P.F. act. However, the employer may choose to pay the full amount if desired.

With Regards,
Pradip

I want to have clarification on this: A person working in my factory, drawing a daily salary of 500-600 (special fabrication work). The same person will not be available for all the days I require. Persons may change. Similarly, I have 4 persons in my factory who work approximately 18-20 days per month. My factory is registered under the PF act where all regular workers are covered under ESI & EPF. Should I have to cover these temporary workers also under the PF act?

My doubt as above is because their monthly salary per person is arrived at 15000/- individually and paid on their days present basis. Since the monthly salary is Rs. 15000/-, which is above 6500/-, is it necessary for me to include them in PF? Or is there any exemption procedure for them alone?

Please clarify.

Regards,
Ramamoorthy.S

Dear All, Basic salary means basic + DA, and PF is deductible on the basic salary. No other allowances come under the PF arena. The maximum cap is ₹6500 of the basic salary. In case any employee receives an increment and post-increment, their basic salary is greater than ₹6500, the employee would have two options: to contribute on the whole basic salary or advise the employer to deduct the PF on the basic salary up to the ₹6500 amount.

Dear all,

A worker is earning Rs. 225/- per day, and for a month he receives Rs. 5850/- for 26 working days.

Here, we are treating the gross salary in two parts, i.e., 60% of the total salary is treated as Basic & DA. The remaining 40% of the salary is treated as HRA & other allowances.

60% of the total salary, i.e., Basic & DA, is considered for PF calculation. 100% of the total salary is considered for ESI calculation.

a) Is this method correct or wrong?
b) According to minimum wages, should the total salary be considered for PF calculation?

Thanks,
Balamurugan

Here, we have to consider only the basic salary, where other allowances will not be included in the basic. Hence, PF wages are Rs. 5000 only.

DASU.B

Currently, we are deducting PF contributions for the full Basic + DA (below ₹6,500/- and above) at 12%. However, we are now planning to deduct only for Basic + DA up to ₹6,500/- (above ₹6,500/- Basic + DA ceiling to ₹6,500/- only). Are there any legal obligations regarding this change? Please advise me on this matter.

Regards,
Ashoka M S

Dear Bala, please go through the recent judgments given by the Madras High Court and the Madhya Pradesh High Court regarding the inclusion of components into Basic Wages. This would clear your queries. As per earlier and existing practice, only Basic and DA are considered for the calculation of PF contribution.

Regards,
David

Dear Seniors,

Example: My Salary Structure in a Software Company

- Basic: 3575 (55.00%)
- HRA: 1300 (20.00%)
- Conveyance: 488 (7.50%)
- Educational: 162 (2.50%)
- Medical: 325 (5.00%)
- Professional Development: 325 (5.00%)
- LTC: 325 (5.00%)

Total: 6500 (100.00%)

Currently, the employer is deducting PF on Basic, i.e., 12% on 3575 is Rs. 429. The new provident fund rule is expected to affect HRA. Could you please advise on this?

Regards,
Praveen

Hi,

The recent court judgments are favorable towards establishing fair social security, as there is a perception that PF should be deducted on 12% of the basic salary. To minimize implications, many companies have kept the basic salary as low as 1000 INR, thus contributing minimally to social security.

Both court judgments are very positive for ensuring a strong social security system. The judgment can be summarized as whatever your breakup is, PF should be deducted at least on the PF base (Basic + Special Allowance) of the minimum wages of the state and category (skilled/semiskilled/unskilled).

There are rumors that the PF exemption limit may be raised to 10000 INR initially, bringing it in line with the ESIC cutoff.

Regards,
Shibu Krishnan