Understanding PF Contributions in Tamil Nadu: Is It 12% on Basic or Gross Salary?

I know 12% of the salary is payable as PF. But is this 12% calculated on the basic salary or the gross salary? In Tamil Nadu, is it 12% on the gross salary? Can anyone enlighten me?

Understanding PF Contributions: Basic vs. Gross Salary

12% is the contribution on the Basic Salary and Dearness Allowance. However, the basic salary has been defined in the Act as all-inclusive remuneration payable as per the contract of employment. Therefore, as per law, it is the gross salary that will attract PF contributions. There have been confusions regarding its treatment, and all were doing it based on Basic Salary and DA (if any), and there have been several court rulings on this.

In order to provide a clear picture of what constitutes PF qualifying salary, there has been an attempt to amend the present EPF & MP Act to include all elements of wages except HRA (to some extent) in the PF contributing salary. Even now, the legal side is very clear that PF is payable on Basic wages (basic wage means and includes all emoluments earned by an employee as per section 2(b)) and dearness allowances.

This being a Central Act, there is no separate treatment for Tamil Nadu.

Regards, Madhu.T.K

I am confused about the definition of "Basic Salary." As per EPFO C-III/022/3(6)2014/MH dated 18.03.2014, "Basic Wages" as defined under section 2(b) of the Act means "all emoluments which are earned by an employee while on duty or on leave... in accordance with the terms of the contract of employment... but does not include" among other things - HRA, OT allowance, Bonus, Commission, or any other similar allowance payable to the employee.

Does this mean HRA, Conveyance, Educational allowance, Meal allowance, Medical allowance, special allowance, Flexible allowance, and compensatory allowance are not part of Basic Salary?

Understanding PF Contribution Calculation

There is no confusion. As per section 6 of the Act, the contribution is payable on the basic wage, dearness allowance, and retaining allowance (this is applicable only when the establishment or a division is temporarily closed, but some or all employees are paid remuneration to retain them; otherwise, they may leave the company and will not be available when production resumes. That is why it is termed as an allowance to retain them), if any.

Now, refer to the definition of basic wages as given in section 2(b). It includes all emoluments except HRA, overtime wages, bonus, or commission.

The circular also confirms the same. In the present style of salary fixation, it is the employer's cost by employing an employee or CTC, which is considered as part of the contract of employment. In the CTC, everything will be included, and from this, you have to take the remuneration actually payable for the treatment of PF. This is a direction to the PF Commissioners/Enforcement Officers and not to others.

Regards, Madhu.T.K

Thank you very much, Madhu, for the clarification. I have now understood the meaning of basic salary for PF treatment.

P.F. is only deducted on Basic, DA, Retaining Allowance, and the cash value of Food concession. It is a central legislation, and the slab is revised to Rs. 15,000. Therefore, P.F. is only deducted on the above items up to Rs. 15,000. Any individual can deduct his wages in excess as discretionary, up to a certain percentage, on his own, for which no contribution will be made by the employer.

Thank you.