Why Does My New Job Calculate 12% PF Differently Than My Previous One? Can Anyone Explain?

I've joined a new organization in Chennai where they calculate 12% PF on basic only up to Rs. 6500 (as per law). Whereas, in my previous organization in Mumbai, we used to calculate 12% PF on the whole basic of the employee. Why is there a difference? Can anyone help me by clarifying my doubt?

Thanks in advance!

Regards,
Sathya

The company is bound to deduct PF on a maximum of Rs. 6,500, which amounts to Rs. 780. Any deduction on a higher salary is at the company's discretion.

Thank you.

Dear Sathya,

Deducting from the whole basic salary is more beneficial to employees, as they will receive more funds compared to other methods of deduction.

Regards,
Boona

As per the EPF Act, the basic salary ceiling is Rs. 6,500. It is compulsory up to this amount, but above Rs. 6,500, it is at the discretion of the management. If the previous organization contributed based on the entire salary, it depends on the management's consent.

Regards,
V. Subbarao

You can deduct PF on the whole basic or even the whole salary (at the discretion of your company). However, as per the law, the salary ceiling is fixed at ₹6,500 (likely to be enhanced to ₹15,000).

Thanks,

R K Nair

PF Deduction Ceiling

PF deduction ceiling on the wage/salary of Rs. 6500/- as per the Act. The said deduction is a must.

Regarding the deduction of PF more than Rs. 6500/-, it will be at the discretion of the management based on their financial position. This will not be mandatory but voluntary.

In case the basic salary is more than Rs 6500, PF deduction is not mandatory. The company will have the employee sign FORM 11, thus there will be zero contribution towards PF. However, if an employee is moving from another company where they were paying PF, then it is mandatory for the new company to deduct and contribute Rs 780 based on the mandatory limit of Rs 6500. This is in compliance with regulations.

My take on this is that knowing the components of salary being implemented in your organization is very important to determine whether the deduction should be done on Basic or Basic & DA (if given). Similarly, in terms of coverage, a maximum of Rs. 6500/- can be deducted at 12% from employees, but providing more than this is at Management Discretion. However, if, for example, the basic salary is Rs. 8000/- and PF is being deducted at 12%, which amounts to 960, this deduction cannot be reduced subsequently.

Hope this helps.

Regards,
S.S. Rao

Dear Experts,

It is still not clear. If an employer wants to deduct only from the Basic Salary and not include DA, is it permissible as per the EPF Act?

For example, if an employee's Basic pay is Rs. 3000 + Rs. 4000 D.A., can the employer deduct 12% from Rs. 3000 and pay Rs. 360 + Rs. 360 = Rs. 720 in EPF? Or is it compulsory to pay 12% from Rs. 7000?

Thank you.

The PF amount has to be calculated from Basic + DA. We can give 12% of Basic + DA if the employee is earning ≤ 6500 because 6500 is the standard basic for an employee. The actual basic is what the employee is earning. Even if it is more than 6500, we can give 780 (12% of 6500).

Thank you.