Is It Mandatory to Include Extra Allowance in PF Contribution Calculations?

Clarification on PF Contribution

I would like to clarify the points regarding PF Contribution.

Minimum wages prescribe Basic + DA + Extra Allowance + Special Allowance (in case of certain categories of staff).

PF contribution is calculated at 12% of Basic + DA.

PF authorities insist that Basic + DA + Extra Allowance + Special Allowance have to be taken into account for calculating the PF contribution.

The PF act defines wages as all emoluments earned by an employee while on duty, on leave, or on holidays with wages, in accordance with the terms of the contract of employment and paid or payable in cash to him. It does not include:

(i) the cash value of any food concession;

(ii) any dearness allowance, which includes 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 work done in such employment;

(iii) any presents made by the employer.

My question is: Is it mandatory that Extra/Special Allowance be taken into account for PF contribution?

Can anyone please brief me on this?

Would greatly appreciate your feedback.

Thank you,

Aldrin X. Panakal

If a person is earning more than Rs. 15,000 and has a proper breakdown, then you can deduct for amounts less than Rs. 15,000. Normally, minimum wages consist of Basic and Variable DA only, not other components. If you pay any amount to the employee and make the PF deduction equal to the minimum wages, then no one can question you about the lower payment.

Conveyance Allowance Practice

If you provide a conveyance allowance, follow the practice of the TVS Group. They used to collect backup data (tickets/monthly pass/season tickets) from employees and reimburse the conveyance allowance accordingly. Later, the management decided to rationalize the conveyance allowance based on the distance of the accommodation and fixed the amount for employees. When this was challenged in the Madras High Court by the ESI authorities, the court ruled in favor of TVS Group due to their proper records and the rationale for rationalizing the conveyance allowance.

House Rent Allowance (HRA)

If you pay the House Rent Allowance (HRA), ensure to obtain the rent receipt from the landlord and maintain a record of it. This way, you do not need to pay PF or income tax for it.

I hope your doubts are clarified. If you have any other queries, feel free to ask, and our members will assist you in resolving them.

Regards,

As far as concerns special allowances and other allowances, they are still yet to be merged into the calculation of 12% of PF. It is under discussion. Hence, right now, only Basic and DA are under that area of 12% for PF calculation.

Clarification on PF Contribution

I would like to clarify the points regarding PF Contribution. Minimum wages prescribe Basic + DA + Extra Allowance + Special Allowance (in case of certain categories of staff). PF contribution is calculated at 12% of Basic + DA. PF authorities insist that Basic + DA + Extra Allowance + Special Allowance have to be taken into account for calculating the PF contribution.

The PF act defines wages as all emoluments earned by an employee while on duty or 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:
- the cash value of any food concession;
- any dearness allowance, i.e., 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 work done in such employment;
- any presents made by the employer.

My question is: Is it mandatory that Extra/Special Allowance be taken into account for PF contribution? Can anyone please brief me on this? I would greatly appreciate your feedback.

Thank You,

Aldrin X. Panakal