Is My Friend's Company Correctly Calculating PF on a Basic Salary of 20000? Let's Discuss!

My friend's company has started giving them PF recently. However, the company is calculating it on a basic of 20,000 at 12%. This means the employee is giving 12%, and the employer would also give 12%, which is the same on 20,000 or 6,500. Is there any clause in which the company can pay on 6,500, but at the same time, if the employee is paying on basic 20,000?

What would be the minimum amount a company has to pay PF on basic 20,000 if the company is giving less than 2,400 at 12% of the basic? Is this justified under any clause? Can the company give less?

What would be the PF given on 20,000 under various clauses?

Equal PF Contribution for Employer and Employee

It is always better to keep the percentage of PF equal for the employer and employee. Different rates of PF contributions are possible in the case of voluntary PF contribution. In this scenario, the company can contribute PF only on Rs. 6500/-, and the employee's contribution will be based on the actual basic salary. However, when filing the annual returns, it creates a lot of arithmetic problems. It is better to contribute 12% on Rs. 20000/-.

As per the PF Act, we have to pay for the ceiling amount of Rs. 6,500.00 only, and we have to deduct PF only for Rs. 6,500.00. If the management decides to give more contribution to PF, it is up to the company policy. But as per the Act, we have to pay Rs. 6,500.00.

If the employee wants to contribute more to the PF, he can do so, but he has to get permission from his employer, and the same needs to be submitted to the PF authorities for information. Otherwise, during inspection periods, they will create unnecessary problems. It is not necessary for the management to give the same percentage of contribution as the employee. It is purely the willingness of the employer and employee. But as per the act, the ceiling is Rs. 6,500.00.

Regards,
Alphonse
[Phone Number Removed For Privacy Reasons]

When an employee's contribution is 12%, then the employer can also give 12%. When an employee contributes based on $6500, the employer also contributes based on $6500.

Regards,
Dattatraya

Understanding PF Ceiling Limit and Contributions

The PF ceiling limit is Rs. 6,500/-. For calculation purposes, you need to calculate the Pension (8.33%) on Rs. 6,500/-, which amounts to Rs. 541/-. The remainder will go to the PF fund (3.67% or the difference) from the employer's contribution only.

If the basic salary is Rs. 10,000/-, then the employee deduction is Rs. 1,200/- (12% of Basic). The employer contributes Rs. 541/- (EPS - 8.33% of Rs. 6,500/-), and the remainder, i.e., Rs. 1,200 - 541, which is Rs. 659/-, goes to the PF fund.

Regards,
Dinesh

Clarification on PF Contributions

I have read the different views. The fact is that the employee can contribute based on the salary he is earning (in this case, it is 20,000). The employer can restrict his contribution for the salary up to 6,500 (which works out to 780/-, out of which 541/- will be Family Pension and 239/- will be Employer's Provident Fund). The employer can contribute the full amount if he desires, but it is not compulsory. It is not correct that the employee has to obtain permission from the employer to contribute for more than 6,500/- salary.

Regards,
Vilas

Below ₹6,500, we can calculate 3.67% and 8.33%. Above ₹6,500, the pension is ₹541 and PF is ₹239, only from the employer. Employees are required to share 12%.

Thanks & regards,
E. Ramesh
Senior Personnel Officer
Chittoor

Above ₹6500 salary - PF is not compulsory. It is purely based on the willingness of both the employee and the employer. Once a person enters into the PF Act, even if they earn above ₹6500, they cannot opt-out from the PF Act as long as they continue working with the same management.

PF contributions can be restricted to ₹6500 [basic + DA], with 12% of the PF amounting to ₹780. While an employee can suggest management deduct more than ₹780, there is no obligation for the management to match that contribution. The maximum contribution required from the management is ₹780.

That's it.

Regards,
S. Gopal