Is It Fair to Deduct PF on Only ₹6,500 When Salaries Are Much Higher?

In our organization, most of the employee salaries are above ₹20,000 per month gross. Recently, the PF has issued a circular stating that PF contributions must be deducted on the gross amount. Is it valid for us to deduct only the minimum of ₹6,500 gross, i.e., only ₹780 per month, instead of deducting on the gross ₹20,000?

Regards

PF is calculated on the basic wages and not on the gross pay. Once again, there is a ceiling of ₹6,500. So, you shall restrict it to the same.

I am sorry, but there should be a ceiling limit. Do you have any circular or PDF on the same? Can you please share it?

I saw the news in today's TOI. Save more in provident fund, but take home less as salary - The Times of India

Pon

Actually, when we have an inspection from the PF Department, they notify us that apart from HRA, all allowances should have the PF amount deducted.

Though all other allowances except HRA can be treated as part of basic wages, the wage limit for computing contribution will not increase; it will remain the same at ₹6,500 per month. Therefore, the contribution can be limited to ₹6,500 per month.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Let me clear the confusion. Today, we received news from the Times of India newspaper stating that the wage ceiling is ₹6,500/-. However, there is no clear message regarding whether the employer also has to deposit 12% of the gross amount in respect of the employees. Employee PF contributions will be deducted from the gross salary (all allowances other than HRA), while the employer's part will be based on ₹6,500/-, i.e., ₹780/-. Employer contributions above ₹780/- will be voluntary, depending on the employer's choice. However, the employee's choice has been closed after this news.

In the case of expats, the contribution will be 12% of the gross salary for both the employer and the employee.

Thank you.

Can I know, after the recent circular, what is the minimum wage on which PF is to be deducted? Is it on ₹6,500/- or on the entire amount, i.e., ₹15,000 or more?

Understanding the PF Circular on Splitting of Wages

As the circular was initiated from the PF office dated 30.11.2012, it pertains to Section 7-A (Determination of money due from the employer).

One of the points mentioned in the circular, i.e., number 12, is about "SPLITTING OF WAGES," which is defined as follows:

Previously, under Section 2(b) (ii) of the Act, "commission" and "any other similar allowance" were included, encouraging the subterfuge of splitting wages to evade PF liabilities. Now, the definition of "basic wages" has been clearly outlined in the circular to include all allowances paid to employees on a regular basis as part of "Basic Wages."

Therefore, based on my understanding, the circular does not impact the maximum ceiling limit for PF calculation, i.e., 12% of basic (Max Limit 6500) as specified in para 26A of the PF scheme.

Thus, only the consideration of Basic Wages should include all allowances paid monthly but should not exceed the ceiling limit of 6500.

Please reach out if you have any queries regarding my interpretation outlined above.

Regards,
Pushkar Bisht

EPFO Circular on Wages Breakdown

Please find attached the circular from EPFO dated November 30, 2012. Refer to Sr. No. 12 for the breakdown of wages.

Regards,

Clarification on PF Ceiling and Calculation

There is no ceiling on PF; the ₹6,500 ceiling is only for the pension part. PF shall be calculated on 12% of the gross as per the latest circular issued by EPFO on 30 Nov. 2012.

Please refer to Para 26A of the PF scheme. It has been mentioned there.

Regards,
Pushkar Bisht

Please find attached the circular. Can anybody provide information about the minimum limit of ₹6,500? Can employees deduct P.F. based on the minimum limit?

Regards,
Kishor

Understanding PF Contribution Limits

The slab limit on the employer's part will remain the same, i.e., ₹780 (12% of ₹6,500). However, the employee's contribution will be calculated on the gross pay (less HRA). For example, if one has a basic salary of ₹15,000 and a DA of 80%, the gross pay will be ₹27,000. Consequently, the PF deduction would be on ₹27,000. Therefore, ₹3,240 will be the employee's share, and ₹780 would be the employer's share.

I would like to inquire about the recent PF amendments regarding the deduction of PF amounts from the gross salary.

Regards,
S. Venkatesh

Amending the Wage Ceiling in the Employees' Provident Fund Act

Why not legislatively amend the wage ceiling of ₹6,500 in the Employees' Provident Fund & Miscellaneous Provisions Act, 1952, to ₹15,000, as done in the ESI Act, 1948, to clear the confusion created by the recent circular of the EPFO defining the basic wages?

Raising the wage ceiling to ₹6,500 and the current rates of EPS shall ensure not only more savings for employees but also an increase in pension upon retirement, which is currently meager and insufficient. This adjustment serves no purpose as intended in 1995 due to the escalating inflation.

If an employee's basic salary is above $10,000, I should deduct from the basic. If it is $6,500, then I have to deduct only that amount. Please reply with what to do about the remaining balance in the basic salary.

As per the latest circular issued by the EPFO, the EPF contribution will be on basic + DA, food allowance, and any undefined wages such as special allowance, other allowances, and commissions, which are deemed as part of basic wages. Furthermore, where there is a splitting of gross wages that is unjustifiable, the allowances can be considered as part of basic wages. Apart from the above circumstances, the EPF calculations remain the same as they are.

Regards.

EPF and Pension Contributions Clarification

1) The 12% EPF (employee share) must be deducted from basic + DA (old circular). However, in the recent circular, EPF will be deducted from the gross salary only at 12%. Additionally, the employer should add the following contributions:

2) Pension contributions are at 8.33% if the wage is greater than or equal to 6500 = 541.00 or 8.33% of the gross salary.

3) Employees' Provident Fund is at 3.67% or the difference amount = employee share - pension amount (541) → employee share (12%) + employer share (3.67%) or the difference amount + pension contribution (541.00).

The above three contributions will be paid through online ECR challan.

Regards,
Ananda Raju Ramoji Group.

Today, I had a meeting with the PF Officer in Ahmedabad. He informed me that the government has just issued a notice on 30-11-2012, but the applicability is pending. Due to elections and other reasons, we will declare it later on. Every establishment covered by the PF will receive an official letter from the PF office regarding applicability and eligibility. After that, we will deduct PF from the GROSS SALARY.

Kindly wait for the letter from the PF Office.

Thank you,

Ashish

Please check that although the ceiling is ₹6,500 for the employer, the amount works out to 13.61% for the employer, i.e., ₹8,845 and not ₹780. As long as the ceiling is maintained, the employer need not pay beyond the ₹6,500 base.

Khafeeman, please check that though the ceiling is Rs. 6500/- for the employer, the amount works out to be 13.61% for the employer, i.e., Rs. 885/- per month and not Rs. 780/-. As long as the ceiling is maintained, the employer need not pay beyond Rs. 6500/- as a base.

Please refer to your query on the above subject. Please refer to Col. No. 12 of the circular issued by CPFO Mr. R C Mishra, who retired from the services on 30/11/12. The circular was issued particularly for departmental purposes to provide steps/guidelines for conducting quasi-judicial inquiries under Sec 7A for violations of rules and non-compliance with provisions under the EPF Act - 1952.

The issue raised pertains to the splitting of wages, i.e., basic wages as defined under Sec 2(b)(II), where any commission or allowances are considered as part of wages. In this context, the Honorable Supreme Court delivered a verdict stating that all such allowances, commission, or other components of the salary paid to employees must have uniformity to be considered part of wages.

Furthermore, as you are aware, please refer to Sec 6(B) of the EPF Act - 1952, where rules describe that PF contributions are payable on Basic Wages, DA, and retaining allowances paid to employees for contribution.

What Mr. KHAN stated is correct. Though the circular mandates a 12% contribution on the gross amount excluding HRA, this does not impose any liability on the employer. They can still continue to contribute only up to the ceiling of ₹6,500/-, as the scheme allows the employer discretion regarding contributions exceeding the ceiling.

Regards,
Sasikumar. R.
Senior Manager Legal

The liability of the employer for EPF contribution is in respect of employees drawing wages (Basic + admissible allowances) up to Rs. 6500/- only.

Regards,
N P Singh

As I think, both are right, but a huge confusion is being created by EPFO only. They are trying to cover only the employees as the government has not intended to initiate any process to amend para 26 A of the EPF & MP Act, which mandates the maximum limit of Basic wages for EPF purposes.

PF Circular Kept in Abeyance, Says Kharge

It raised a lot of queries and caused much confusion.

Union Labour and Employment Minister Mallikarjun Kharge on Thursday said the November 30 circular issued by the Employees Provident Fund Organisation (EPFO) on the inclusion of certain allowances for calculating Provident Fund contribution has been kept in abeyance.

Talking to The Hindu here, he said since there were a lot of queries and confusion on the circular issued by the Chief Commissioner of Provident Fund, the government had decided to keep it in abeyance until further order. “So the status quo will continue.”

Informed sources said though the circular — on fixing the PF contribution while calculating employees' basic wages — contained nothing new and only highlighted what was there in Section 2 of the EPF Act, there was a lot of confusion among employers.

The circular stated that all allowances, except a few, should be taken into account for calculating wages, and from that, the PF contribution of employers had to be arrived at. This meant an employer had to contribute more towards PF for the employees. However, it did not clarify which of the allowances were to be taken into account for calculating basic wage.

Originally, the circular was issued to arrest the growing trend among some employers to lessen their burden on PF contribution by splitting the basic salary into various allowances and thus bringing down their contribution. This results in loss to employees.

There are over 5 crore subscribers in the EPFO, and employees have to contribute a statutory minimum of 12 percent of their basic salary towards PF, and an equal amount is contributed by employers.

The circular said basic wages “encompasses all payments except the specified exclusions. All such allowances which are ordinarily, necessarily, and uniformly paid to the employees are to be treated as part of the basic wages.”

PF does not cover certain “specified exclusions” like “cash value of any food concession; any dearness allowance ... all cash payments by whatever name called paid to an employee on account of a rise in the cost of living, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment …”

Regards,

Jana Venkata Ramakrishna

[Phone Number Removed For Privacy Reasons]

I am not very experienced, but I still want to be part of this conversation. First of all, the ceiling of ₹6,500 is for the pension amount. There is no such limit for PF; it is 12% of basic, simple as that.

The circular you are talking about is just a circular; there is nothing mentioned regarding implementation. As per the circular, PF will be deducted from the gross salary. In cases where the employee's salary is part of the CTC, the company will revise the salary structure and shift that extra burden to the employee. However, where an employee is simply receiving a salary with no documentation or contract (meaning labor/worker), the employer has to bear the additional burden.

PF Contribution Guidelines

For the last six years, if there has been any change, I am not sure, but until 2006, it was 12% of the basic salary up to a maximum limit of ₹6,500. The employer's contribution is also 12%, up to a maximum limit of ₹6,500.

Voluntarily, employees can choose to increase the rate of contribution. The same applies to the company; they can increase it for welfare purposes, etc.

Gross salary is never considered when calculating PF contribution; it is always based purely on the basic salary.

The view expressed is that only basic pay counts for PF purposes. In such cases, those who have taken other components are paid more. Although the government and employees are happy, the employer is at a loss. This cannot be called back. Please proceed ahead from the standpoint of what we have now.

Do you have any circular about the rate revision of EPF from ₹6,500 to ₹15,000 per month?

Regards, Reyaz