Understanding Provident Fund Deductions: Is It Really 12% or 24% from Your Salary?

Understanding Provident Fund (PF) Rules

I heard that every company has different rules regarding the Provident Fund (PF). I agree, but my question is about the basic contribution: 12% is deducted from the employee's portion. But what about the other 12% portion on the employer's side? Is that also taken from the employee's basic salary, making it a total of 24%?

So, is it also a rule of the company? Why do they deduct from the employee? Why not provide it from that specific company?

Dear Pankti, irrespective of the employee's status (On Roll or Off Roll), 12% of the basic salary needs to be contributed towards PF from the employee's side, and the employer has to make the same contribution. However, the employer's contribution should not be deducted from the employee's salary.

Regards, Rajasekar

The employer will not deduct PF from the employer's part of the employees' gross salary. When issuing the offer letter, they mentioned PF @ employer in the Annual CTC breakup, including it as benefits in the CTC components. This practice is common in private companies.

Regards,

Employer and Employee Contributions to CTC

The employer's contribution will be added to the CTC as it's the cost towards the employee, and it is considered the income of the employee. The employee's contribution will be deducted as it is taken as a deduction from the employee's side.

This is the case where an employee's gross salary will be different in the appointment letter compared to the communicated salary. In private companies, they break up the PF as well as the annual bonus, which will be included in the CTC.

Regards,
Nitesh

The whole of 24% should not be deducted from employees' salaries because the 24% is bifurcated into two parts: 12% (employee contribution) and another 12% (employer contribution). That is why only 12%, which is the employees' contribution to PF, should be deducted. Again, the employer's contribution is also bifurcated into two parts: 8.33% (pension fund) + 3.67% (employer's PF) + an additional 1.61% as admin charges on the employer's contributions.

Regards,
SATYAJEET

The position given by Mr. Satyajeet is correct as per provision. However, the employer has the right to restrict its contribution up to Rs. 6500 if not already contributing at a higher limit.

Regards,
AK Chandok
RPFC (Retd.)
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Hi Friends,

Mr./Ms. Pankthi's doubt is correct. In some companies, employees' portion and employers' portion of PF total 24% are deducted from employees' net pay, not from gross. I have had such an experience as well. When I asked management, their answer was related to Mr. Nitesh's response.

Thanks and regards,
K. Jai

Some companies, as a policy, include the employer's share of the 12% PF amount in the CTC (Cost to the Company). During the interview, when accepting the annual salary package, you might have agreed to this arrangement. Consequently, they deduct your 12% contribution and the employer's share of 12.5%, totaling 24%, from your salary. This is correct.

Regards,
D. Gurumurthy
LL, HR & IR Consultant