Provident Fund Deduction in IT: Is Rs. 780 a Standard Amount for All Employees?

Provident Fund Deduction Rule in IT Software Companies

Is there any rule stating that a Provident Fund (PF) amount of Rs. 780 is standard and deductible for all employees in an IT software company?

Regards

Dear Abrahamdeepa, the highest ceiling to cover the PF is Rupees 6500 basic. The statutory requirement of contribution from that amount is 12%. Therefore, 12% of 6500 is 780. This is applicable to all types of coverable organizations, not only to IT software companies.

Hope I made it clear.

Regards,
S. Sethupathy, Excellent HR Services, Erode.

Dear Mr. Sethupathy, I am clear that the highest ceiling of Rs. 6500 basic, with a 12% contribution of Rs. 780, is PF deductible for each employee. However, I would like to know if this can be standardized for all employees because salaries vary for each employee, causing PF contributions to also vary.

Regards,
Abrahamdeepa

Dear Abrahamdeepa,

PF can be deducted to any amount, but it must be above or at par with the Minimum Wages fixed by the Appropriate Government from time to time. PF is deducted as 12% of Basic Wages + DA. There is no restriction for deducting the PF at a higher level.

If you deduct PF at a rate of 12% for Rs. 20,000/- for a person, then:
- 12% Employee Contribution = Rs. 2,400/-
- 8.33% EPS (Pension) = Rs. 541/-
- 3.67% Employer PF = Rs. 1,859/-

I hope I need not explain the Admin Charges of 1.1%, EDLI Contribution of 0.5%, and EDLI Admin Charges of 0.01%. Altogether, we have to remit 25.61% of Basic Amount + DA to the PF Office.

If Basic + DA is less than Rs. 6,500/-, then the Actuals will appear as 8.33% and 3.67%. Otherwise, it should be as mentioned above.

If you deduct PF for all the employees, it will be useful for them to show for tax exemption under Section 80C, and it will become a corpus fund for their future after retirement.

Dear Mr. Sethupathy, Yes, salaries vary for the upper scale where the basic will differ, and automatically the PF % will be different. This was implemented in my previous company, which was a Fortune 500 MNC. However, in my current company, it is standard for all at Rs. 780. My doubt is whether this is applicable.

Regards, Abrahamdeepa

Dear Abrahamdeepa,

Greetings for the day. First of all, it should be noted that for the deduction of EPF, the following components of salary/wages should be considered: Basic + DA/VDA + food concession if any. Secondly, once a member is enrolled for EPF, they will never be excluded until they remain in service. Thirdly, regarding Rs. 6500/-, it is a ceiling for EPS/EDLI, not for EPF. As stated earlier, with the components described, the deduction of EPF should be done.

Last but not least, it totally depends on the company whether they pay the contribution based on the actual basic or on the EPS ceiling. If the company is willing to pay the EPF contribution on the actual basic, the contribution of EPS & EDLI will be on Rs. 6500/- rather than the actual basic.

Thanks & Regards,

Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons], [Phone Number Removed For Privacy Reasons]

Yes, you are correct that the minimum wage should be the basic amount because it is a component of basic + DA. For the soft copy, please visit the EPFO website.

Regards,
Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons]

Dear Mr. Bhaskar, Greetings of the day! You have explained things very nicely. However, I am a little confused. As far as I am aware, if an employee crosses the limit of Rs. 6500, they are entitled to P.F. deductions on the limit of Rs. 6500, i.e., Rs. 780. If the employer deducts the P.F. on an increased amount, then the employer will have to share the equivalent amount towards P.F. In most cases, employers contribute the minimum amount, i.e., Rs. 780. Nevertheless, an employee can enhance their contribution voluntarily. Kindly update me.

Regards, Ajay Bajaj

Very well explained. I wish to add a few finer points here:

- The VPF contribution can be extended up to 100% of your basic.
- It would be very optimal to start VPF in the new contributory period, i.e., March paid in April.
- The percentage of Government contribution to EPS Corpus fund is 1.16% of the wages.

Regards,
S. Sethupathy, Excellent HR Services, Erode.

Thank you for sharing the information. In fact, I was not aware of the exact percentage of EPS contributed by the Government, although I do know that a certain percentage is being contributed by the Government towards the EPS corpus fund. Please let me know if you need any further clarification or details.

Thank you.

Best regards,

Dear Sumit Kumar, Thank you for the detailed explanation. The employer contribution of PF is deducted from the actual CTC offered by the company, and then the salary breakup is given to the employees. In that salary breakup, there is again employee deduction which is a must, along with ESI deduction, plus Insurance deduction, etc., where the take-home or net pay is a very less amount. How to avoid this loss from the employee's side?

Please advise me.

Regards, Abrahamdeepa

As the deductions for PF and ESI are mandatory, it is up to you to negotiate with your employer for a suitable CTC to nullify the deductions.

Regards,
S. Sethupathy
Excellent HR Services
Erode

Dear Mr. Sethupathy,

I agree and understand that the deduction of PF and ESI is necessary and mandatory. However, why should the employer adjust the employee's CTC for employer PF deduction when they can pay the standard amount of Rs. 780 to all levels of staff using their own company expenses, along with interest, to provide benefits to the employees?

If this is applicable or not, please provide any guidelines.

Regards,
Abraham Deepa

Please try to understand the difference between CTC (Cost to Company), Gross Pay, and Net Pay (take-home salary). The company is deducting from the CTC because the CTC is the complete package spent on you by the company. In simple terms, you have committed to working for the company for 8 hours per day at the rate of CTC. The Gross Salary will have deductions of 12% PF and 1.75% ESI. In the CTC, there are deductions of 12% Employee PF, 13.61% Employer PF, 1.75% Employee ESI, and 4.75% Employer ESI altogether.

While fixing the compensation package, you could have clarified what your take-home salary would be. Now, upon completing your probation period, you can demand or claim a revision.

All the best.

Regards

In CTC, employees' shares are not to be shown because these contributions are the expenses of the employees.

Regards,
S. Sethupathy
Erode

My intention in communicating is that the employer and employee shares of deductions in PF and ESI will be made out of CTC.

Thanks for your clarification.