Understanding PF Contribution: Does It Include Allowances or Just Basic Pay and DA?

Dear Sirs/Ma'ams, Does the PF contribution include basic pay, DA, and allowances? Or does it exclude allowances? Are there any judicial clarifications available?

It is correct that there will be no PF deduction on leave encashment. However, when it is a service benefit for an employee, such as in the case of resignation, termination, and retirement, this applies. But what about when anybody encashes their leave while they are in service?

Hi, as per PF Act Section-2 Chapter-1, "Pay" includes basic wages with dearness allowance, retaining allowance (if any), and the cash value of food concessions admissible thereon.

PF contribution includes basic + DA + allowances. As per Sec 2b of the PF Act, basic wages include all emoluments except HRA, D.A., and cash value of food concession. Therefore, special allowance is included in the definition of basic wages. According to Sec 6 of the PF Act, PF should be contributed on Basic + D.A. where D.A. also includes the cash value of food concession.

So, special allowance is included in basic wages, and therefore, PF should be contributed on that.

Hope this information was helpful for you.

Dear Baskaran, please read Section 6 of the PF Act, where it mentions that special allowances are included in basic wages.

Section-6: Contributions and Matters Which May Be Provided for in Schemes

The contribution that shall be paid by the employer to the Fund shall be ten percent of the basic wages, dearness allowance, and retaining allowance, if any, for the time being payable to each of the employees, whether employed by him directly or by or through a contract. The employee's contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding ten percent of his basic wages, dearness allowance, and retaining allowance, if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section. Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words "ten percent," at both the places where they occur, the words "twelve percent" shall be substituted. Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for rounding off of such fraction to the nearest rupee, half of a rupee, or quarter of a rupee.

Explanation I: For the purposes of this section, dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.

Explanation II: For the purposes of this section, "retaining allowance" means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.

Regards.

As per Sec 2b of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, Definition of Basic Wages

"Basic wages" means "all emoluments" which are earned by an employee while on duty, on leave, or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him. However, it does not include:

(i) The cash value of any food concession.
(ii) Any dearness allowance, that is to say, 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 or of work done in such employment.
(iii) Any presents made by the employer.

Allowances that are paid to the employees, except those referred to in Sec 2b(ii) (as above), are included in the definition of basic wages.

If the gross salary of an employee is Rs. 15,000 or less per month, and it is broken down into basic, HRA, conveyance, medical, meal, and travel allowances, how should it be calculated as per the new PF enhancement rule?

PF Balance Explanation Needed

My PF balance shows an EE amount of 6743 and an ER amount of 2166. I have been working in my company since 1/11/2014. Can you explain my total balance amount? My basic salary is $4000.

Regards