Can an Employee with a Gross Salary of Rs. 6900 Be Exempted from PF? Seeking Guidance

PF Exemption Query

I have one query regarding PF exemption. If X is an employee newly recruited in an organization, with a gross salary of Rs. 6900 and salary bifurcation as follows:

- Basic + DA: 6500
- HRA: 400

Can Mr. X be exempted from PF? Please guide me on the same.

Awaiting your quick response.

With Regards,
Vineet Deshmukh

It is mandatory for an employee whose pay (basic + DA) is up to Rs. 6500 to be a member of EPF. As Mr. X's basic + DA is Rs. 6500, he is not exempted from PF.

If Mr. X's Basic + DA is Rs. 6600 and HRA is Rs. 300, then can he be exempted from PF? If not, how much salary should be given to Mr. X for the exemption of PF?

With Regards,
Vineet Deshmukh

In that case, he is exempted. However, it is not advisable because if any PF inspector visits the office, he may point out the same and ask you to provide a proper breakup like others have. You might end up paying both employee (EE) and employer (ER) contributions along with interest and penalties.

Thank you.

I do agree that there is no law for salary breakup. However, the PF department feels that we have designed the breakup solely to avoid PF contributions. We are unable to convince them. That's my opinion.

Dear Seniors, I want to ask, is there any clause in the PF Act stating that those whose gross salary is above Rs. 15,000 have to contribute both amounts from their salary? Kindly provide an answer. Thank you.

Please note that PF contribution should be calculated based on a portion of the minimum wages as per the law. The minimum wages cannot be split up into other allowances to avoid PF liability.

Please find attached a circular regarding the same.

Regards,
[Name Removed For Privacy Reasons]
[Phone Number Removed For Privacy Reasons]
Nagpur (M.S.)

Dear Neeraj, I have read the above circular. It is related to the splitting of Minimum Wages to reduce PF Liability. For example, if according to Minimum Wages Basic+DA is 5000, then you must deduct PF on 5000. But if this 5000 is split among other allowances, then PF liability is low, which is illegal as per the above circular.

Question on PF Exemption

My question is if Mr. X's Basic+DA is Rs. 6500 and HRA 400, can Mr. X be exempt from PF?

Mr. Syed and Mr. Jeevarathnam, thank you for your suggestion.

With Regards,
Vineet Deshmukh

Section f(ii) of the Employees' Provident Fund scheme defines an excluded employee as "an employee whose pay at any time he is otherwise entitled to become a member of the fund exceeds Rs. 6,500/- per month."

In your case, if X is an employee who was not a previous member of the PF and whose pay exceeds Rs. 6,500/- per month in your company, then he can be treated as an excluded employee. Therefore, it is not mandatory for you to register him in PF. To benefit from this section, you do not need to submit any letter to the department. The only condition is that in the event of an inspection, you should be able to show that he earns more than Rs. 6,500/- as monthly pay.

However, if he is already registered in PF with another company, then you are required to compulsorily register him in PF. Even if he closes the previous account and withdraws all the amounts from PF, you can still utilize the benefit of the section.

Regards,
Jiju V.S. Asst. Manager HR - Legal The Leela Kovalam

I fully agree with Mr. Jeevarathnam. PF will be applicable if the Basic + DA is equivalent to Rs. 6500/- or less. However, to avoid PF applicability, it is not advisable to change the salary structure. Being in HR, you must have formed the salary structure according to the RL of the employee in your organization. We cannot change the salary structure as per the whims and fancies of any employee.

Regards,
Saji

As per Section 17(2) to be read with Paragraph 27 of the EPF Act, an employee can be exempted from being a member if he is drawing more than Rs. 6500/-, but that has to happen at the start of his career before any PF account is opened. If he fulfills this clause, he can apply on Form 11 through his employer, and the RPFC will be the one who authorizes the exemption after verifying the facts of the case.

It is to be noted that the withdrawal of EPF on resignation is illegal. A member can only transfer his account to his new company if he is joining within two months from the date of his resignation from the old company. There are many clauses like covered establishment and exempted establishment, which are involved during one's resignation from a company and joining another company. Hence, one has to be very careful in asking for exemption since he is liable for punishment if found guilty of withdrawing the amount during his career. For details, you can read the act between the lines.

Regards,
P. Vathiraj
[Phone Number Removed For Privacy Reasons]

PF exemption is different from PF membership exemption. No one is exempt from PF exemption. However, an employee can choose not to pay contributions provided their basic salary is above 6500. I hope this clears things up. PF is a social security aspect and hence mandatory and beneficial too.

Thanks and regards,
Bijay

As per my knowledge, any company will be regulated by a state or central act in which it is registered. Though there is no specific Minimum Wage (MW) and Dearness Allowance (DA) for Employees' Provident Fund (EPF) deduction, there is a fixed wage ceiling one can follow. Similarly, if any dispute arises out of employment with any employee, one has to follow the Industrial Disputes (ID) Shop Act of the concerned state. The final guideline will then be the MW specified by the Shop Act of the state or central government or the service rules framed by the organization. Hence, it is better to follow the Shop Act or policies framed by the company while fixing the Total Cost to Company (TCC) for an employee. The MW as per the Shop Act is Basic + Variable Dearness Allowance (VDA) = minimum wage or salary. Any amount fixed above that can be shown in other components such as House Rent Allowance (HRA), Conveyance Allowance (CA), or Other Allowances (OA), etc.

Regards,
NC

What records you show to PF are important. If you show a salary of Rs. 6500, he is eligible for PF, but if you show the salary as Rs. 6501, he is exempted from the PF.

Regards,
RA LAWANDE