Understanding the PF Salary Limit of ₹6500: Which Provident Fund Act Rule Applies?

PF limit on salary up to ₹6500/- in which section or rule of the Provident Fund Act?

Please see the definition of Excluded Employee. The proviso to Para 26A(2) clearly provides that the amount of contribution shall be restricted to ₹6,500 only.

Every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies, shall contribute to the Fund, and the contribution shall be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29.

Provided that, subject to the provisions contained in sub-paragraph (6) of paragraph 26 and in sub-paragraph (1) of paragraph 27, or sub-paragraph (1) of paragraph 27A, where the monthly pay of such a member exceeds ₹6,500, the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of ₹6,500, including dearness allowance, retaining allowance (if any), and cash value of food concession.

Attached is the file for the Act regarding the PF limit of Rs. 6,500.

My company wrongly treated my gross salary as PF wages and deducted 12% from the gross, i.e., 20,000. The deduction of 12% for 20,000 is 2,400.

Changing PF Wages Calculation

Now, can we change the PF wages to 6,500 and PF 12%, i.e., 780? Is it possible? Please let me know.

As per the EPF Act of 2012, the EPF salary limit is Rs. 6500/-. For example, Basic + DA = 12% PF. If the Basic is Rs. 3562 and DA is Rs. 2912, the total salary is Rs. 6474/-, so the EPF amount would be Rs. 777/- (12% of 6474/-).

However, if the Basic is Rs. 3699 and DA is Rs. 3024, the total salary is Rs. 6723. The question arises: what will be the PF amount deducted from a salary of Rs. 780/- (12% of 6500/-) as per the rule, or Rs. 807/- (12% of 6723)?

Thank you.

The thumb rule for PF contribution is as follows:

a) If an employee's basic pay + DA is less than Rs. 6500, then the employee must contribute 12% of basic pay + DA towards PF. The employer must also contribute 12% of basic pay + DA.

b) If an employee's basic pay + DA is more than Rs. 6500, the employee can choose to contribute either Rs. 780 or 12% of basic pay + DA towards PF. The employer is not required to contribute more than Rs. 780 (plus 1.61% of admin, EDLI). There is a process to be followed for this, which I can describe in detail if you wish.

Therefore, considering your example:
- If the basic pay is Rs. 3699 and DA is Rs. 3024, making the total salary Rs. 6723, it depends on the employee whether they opt to limit it to Rs. 780 or continue with the full 12%, i.e., Rs. 807.

I hope this information helps.

Regards,
Deena Jagasia

Can anyone help us calculate the contract labor wages PF liability? If I engage any contract labor and pay minimum wages, on what grounds will the PF and ESI liability be determined? For example, if I am paying a daily wage of Rs. 250/- for 26 days, what is the PF liability and ESI liability?

The PF liability is calculated on the Basic+DA amount, which, if equal to the minimum wage, will automatically be used to calculate PF. If you pay 250 for 26 days, you need to check the following:

a) What is the minimum wage for Chennai in the area where the workers are hired?

b) If the minimum wage in the area is Rs. 250/- per month, then you need to take Rs. 250*26 as Basic+DA and calculate the PF on the same (250*26).

c) If the minimum wage is, for example, Rs. 200/- per month, then you can make the wage register showing Rs. 200 per month as Basic+DA and the balance as HRA. Calculate PF on only Basic+DA (200*26).

Thanks & Regards,
Deena Jagasia

PF Liability Calculation

The PF liability is calculated on the Basic + DA amount, which, if equal to the minimum wage, will automatically be used to calculate PF. If you pay Rs. 250 for 26 days, you need to check the following:

- What is the minimum wage for Chennai in the area where the workers are hired?
- If the minimum wage in the area is Rs. 250 per month, then you need to consider Rs. 250 * 26 as Basic + DA and calculate the PF based on this amount (250 * 26).
- If the minimum wage is, for example, Rs. 200 per month, you can create the wage register showing Rs. 200 per month as Basic + DA and the balance as HRA. Calculate the PF based only on Basic + DA (200 * 26).

For ESIC, the full gross amount is taken for contribution, including overtime and any other allowances provided.

Thanks & Regards,
Deena Jagasia