Understanding EPF Deductions: Why Only Basic Wages Are Considered for Contributions

Dear All,

Please clarify my doubt. Why is EPF contribution of 12% (as per section 2b sub cls I, II, III) deducted from earned basic wages only? Why is it not included in gross wages for contribution?

Regards,
Isaiyas

The intention of the legislation was simple: to give a percentage of basic wages. Basic wages represent wages paid irrespective of the place of work, making them true wages. This is the reason.

Many establishments are bifurcating the wages into various allowances ignoring the judgments of Gujarat, Madhya Pradesh and Madras High Courts in holding that all allowances except HRA will form part of 'basic wages' to attract provident fund contributions.  Appeals are pending in the Supreme Court against these judgments.  Some of the allowances include as under:
 

Labour Law Index

The intention of the legislation was simple: to give a percentage of basic wages. Basic wages represent wages paid irrespective of the place of work, making them true wages. This is the reason why 12% is taken only from basic wages. When basic wages are paid for the place of work, all other wage components are also paid.

Why is only 12% taken from basic wages and not included in any other wage components? What is the specific reason for taking only from basic wages?