Understanding PF Calculation: Is It Based on 6,500 or the Full 20,000 Salary?

Please clarify the doubt on PF. If Basic+DA is 20,000 per month, then will PF be calculated on a 6,500 basis or a 20,000 basis? If the company is ready to pay on the actual Basic+DA, what should be the breakup?

Thanks,
Mahesh

Proposed Increase in Salary Ceiling for PF Contributions

The ceiling of a salary of Rs. 6,500 per month has now become a mere figure in the books. It is under proposal to enhance this limit to Rs. 10,000 per month, which will be made sooner or later. There are two ways to make this happen.

The problem generally lies with the employer's contribution, and every employer wants to restrict it to the present limit, i.e., Rs. 6,500 per month only. In such cases, Basic + DA should be just up to the limit, and the rest should be paid by way of allowances.

The second way is to consider a certain amount, say Rs. 10,000, out of the total salary on which PF contributions can be paid, and the remaining amount is paid as allowances. This benefits the employee, as more savings go towards PF from their own salary and also enables the employer's contribution up to Rs. 10,000. What you save today helps you in the future. I have always suggested this method to many employers, and it's working fine.

In the second scenario, if we calculate based on 10,000, then the Provident Fund (PF) is 1,200, which means the Pension scheme of 8.33% amounts to 833. However, someone is suggesting that the pension scheme is limited to 541. What can we do to address the balance amount?

The EPF contribution in the Pension Account goes up to a maximum of 8.33% of the current wages ceiling, i.e., Rs. 6500/-. This clearly means that the highest contribution in the pension account is Rs. 541/- as per the current wages ceiling. The balance amount of the contribution (1200-541=659) Rs. 659/- will go to A/c 1.

Hope the doubt is clear.

Thank you.

The above calculations are correct. The amount over and above Rs. 541 of the employer's contribution (i.e., Rs. 659 in our case) goes to Account No. 1, which is the employees' share of PF. Thus, a total of 1200 + 659 will be added to that account.

The best solution to your problem is by increasing your contribution from 12% to 20% (voluntary) with the permission of the employer. The employer's burden will be the administrative charges of the contribution, which shall be very meager. During my tenure of employment (around 23 years), the company was contributing at 10% (8.33% + 1.67%), whereas my contribution was 20% (8.33% + 11.67%), which has benefited me at the time of my retirement.

You can talk to your employer, considering your case, which will be beneficial to you in the long run.

Regards,
Ravi

In my company, we have a pay structure as follows: Basic + HRA + Conveyance + Spl. Allowance. We are deducting PF on only Basic at 12%. We want to know if Spl. Allowance will attract any PF deduction. Please clear our doubt.

Regards, Vijay

Generally, Special Allowance is meant to compensate for the cost of dearness. In your case, if the Special Allowance you referred to is intended to cover dearness, then certainly it will attract PF. Not only that, conveyance allowance is also subject to PF in view of the circular issued last year.

However, if the total salary exceeds Rs. 6,500 (excluding HRA), then PF is payable (at present) up to Rs. 6,500 only, and anything above it is left open.

Regards.

Dear Mr. Kishore, I have the following doubts and would request clarifications:

1. Is the payment of DA + VDA compulsory along with the Basic Salary? If we do not pay DA and/or VDA, how should we bifurcate the Salary Structure? Once we pay the Fixed DA, is it necessary to pay VDA as well?

2. Can the ceiling payment of Rs.6,500/- be considered as the base for PF eligibility (Basic + FDA) and the remainder on other allowances?

3. Which allowances could be paid that would not attract PF?

Could you please send a copy of the circular notified by PF authorities, where the Conveyance Allowance is specified as attractable.

Regards,
V. Kali Prasad