Understanding PF Contributions: Which Calculation Example is Correct for Salaries Above 6500?

Let me suggest on the below example of calculation:

Basic is 10000/-

EXP: 1)

- A) EMPLOYEE = 12% = 1200/-
- B) EMPLOYER = 8.33% TOWARD PENSION ON 6500/- BASIC = 541/- AND TOWARDS PF = (1200-541) = 659/-
THUS TOTAL OF EMPLOYER = 541+659 = 1200/-

EXP: 2)

- A) EMPLOYEE = 12% = 1200/-
- B) EMPLOYER = 8.33% TOWARD PENSION ON 6500/- BASIC = 541/- AND TOWARDS PF 3.67% ON 6500 = 239/-
THUS TOTAL OF EMPLOYER = 541+239 = 780/-

Which example is correct?

Regards,
RAJU SHRINAME

Example 1 is correct. The employee's contribution is 12%, regardless of the basic salary he is earning. According to the PF Act, the employer must contribute 8.33% or ₹541 (whichever is lower) towards the Pension fund, and the remaining amount goes to the PF account. This means that the employer's contribution is equal to the employee's contribution. In addition to these contributions, the employer is also responsible for bearing the administrative charges as per the PF Act.

Regards.

Ex-2 is correct. The difference between employer and employee contributions, i.e., (Rs 1200 - Rs 780 = Rs 420), is treated as a voluntary contribution by the employee.

Please note that it is not compulsory for the employer to contribute 12% of the basic salary equal to the employee's share if the Basic is more than Rs. 6500/-. The employer can contribute only up to the limit of Rs. 6500/-.

Out of this amount, 8.33% of the employer's contribution goes towards the Pension Scheme, while the remaining percentage will go towards the PF.

In your example, the employee will contribute Rs. 1200/- towards their PF deduction, and the employer will contribute only Rs. 780/-.

Thank you.

If the basic salary is more than Rs. 6500, the employee may contribute 12% of the basic salary or Rs. 780, whichever is higher. However, the employer can only contribute up to the limit of Rs. 780 (12% of Rs. 6500).

Regards,
M. Srinivasa Rao

I have a doubt regarding PF. If an employee's basic salary is ₹25,000/-, and he is interested in increasing his PF amount, up to what percentage can he increase it? On what basis can he increase it - on the current basic amount or on ₹6,500/-?

It's not mandatory for an employee to fix the ceiling. He can contribute the whole basic (i.e., 10,000) or 6,500, and he can even make a voluntary contribution (i.e., 12% + 12%) from his side. However, it is mandatory for the employer to pay his contribution on the ceiling amount (i.e., 6,500) along with the admin charges. It's not required to contribute on the entire basic pay if the basic is more than 6,500. This is what the PF Act states.

Additionally, we can exempt those employers with higher salary employees under the instructions from the regional PF office.

Employees can contribute up to a maximum of 88% of their basic salary (in addition to the statutory contribution of 12%), but this is subject to the conditions stated under the Payment of Wages Act. According to the PoW Act, the overall deductions should not exceed 50% of the gross salary.

Please find the above attachment for your information.

Hi, the file I've uploaded is taken from this discussion forum. I don't remember who uploaded it. Now, I can't find this file. So, please explain to me what PF wages are. Is that the employee's Basic + DA? Moreover, what is VPF? Please clarify this for me.

Regards,

Smashi is right. Example 2 is correct. The employer's liability is $6500/-, and the employee may choose to have PF deducted based on the actual basic.

Regards,
Sanjeev

If the employer has obtained permission under Para 26(6) of the EPF Scheme 1952 from the PF Authority to deduct PF on an amount exceeding ₹6,500, then Expense (1) is correct. In this case, both the employee's and employer's shares will be the same, amounting to ₹780.