Is It Legal for Employers to Deduct the 24% PF from Your CTC? Let's Discuss!

Dear All,

Can any employer deduct/remmit the 24% amount of PF from an employee's CTC?

For example, in an appointment letter, the monthly CTC is Rs. 15,500. However, in the offer letter, the CTC is detailed as follows:
- Basic: 12000
- HRA: 2060
- Gross Salary (A): 14060
- Company's PF Contribution: 1440
- Total Deferred Benefits (B): 1440
- Total CTC (A+B)=C: 15500

I kindly request your assistance on this matter.

Thanks & Regards,

Yes, CTC stands for Cost to the Company, and indeed, the employer's contribution is the cost borne by the company. So, it is accurate.

Understanding Employee Provident Fund (PF) Contributions

The entire PF cannot be deducted from the employee. Only the employee's 12% will be deducted from their salary. An employer is obligated by law to pay their part of the contribution. As per Paragraph 31 of the Employees Provident Fund Scheme 1952, the employer’s share is not to be deducted from the members. (Attached).

A CTC of any employee is not related to PF contributions. A CTC is the sum total of the following:

- Fixed pay, which includes basic salary, DA, conveyance, etc.
- Employer's contribution to PF, gratuity, superannuation
- Variable pay: Based on performance/target achievement
- Any perquisites or benefits

Dear Shweta,

Thanks for the update.

For the above case, my employer has deducted 24% of the PF amount from my CTC, i.e., 12% from my side and 12% from the employer's side. During the joining formalities, I signed the offer letter and appointment letter as per the given CTC. Now, after a tenure of 1.09 years, I have resigned from that company. Can I claim the amount that was deducted from my CTC? I request you to please guide me on the proper legal action.

Thanks,

Understanding CTC and Monthly Gross Salary

There is always confusion about CTC and monthly gross. CTC has no legal standing; rather, it is the company's internal matter to determine each employee's actual cost. However, the monthly gross is your monthly salary. In this case, the monthly gross is INR 14,060/-, and after deductions of the employee's contributions to PF, PTAX, & ESI, if any, the employee will receive the net monthly salary.

Components of CTC and Payslip Details

CTC encompasses all related costs (which may vary from organization to organization) for any employee during their employment. In this case, the payslip should display the earning side - Basic & HRA, and on the deduction side, employee contributions to PF, ESI, PTAX, etc. Naturally, the net salary will be less than the monthly gross, which has no direct relation to the monthly CTC.

Thanks & Regards,

S K Bandyopadhyay
USD HR Solutions
[Email Removed For Privacy Reasons]

Understanding PF and CTC

PF is not deducted from your CTC. Your employer's PF contribution is merely mentioned in your CTC letter. PF rules are governed by government regulations and not by the CTC letter. For example, some employers even show gratuity in their CTC letter.

When an employee joins, their offer letter may show gratuity. However, if they leave within a year, they do not receive gratuity as they have not completed 5 years. They do not get the gratuity irrespective of the fact it is mentioned in the CTC letter.

If your employer has contributed their part of the PF and complied with all statutory obligations, then you can withdraw PF as per the normal process, subject to conditions. You do not require any legal action. If this is not the case, you need to first find out exactly who paid how much contribution and then decide accordingly. Visit the EPF website and see the PF passbook. You will get the details of PF deductions from your salary and also the contribution from your employer.

PF Transfer and Withdrawal Process

PF, in principle, is required to be transferred to the new company when an employee resigns from the old company. To make the PF withdrawal process stringent, the government introduced UAN where multiple PF accounts can be tracked under a single UAN. If you are unemployed for more than two months or employed in a company where there is no PF (as per laws), then contact your company HR and initiate the PF withdrawal process.

Dear Shweta Nair,

I think you didn't understand the question properly, but you provided an answer. Anyways, it's not about deducting PF on CTC; it's about showing it as a cost to the company. The employer is not deducting the employer's share of PF from the employee's gross salary, but it is shown as a cost borne by the company. Please understand the question first.

Also, the employer's share of PF is shown in the appointment letter as a cost incurred, which is correct.

In simple language, anything above the Minimum Wages, the company can include any allowances, perquisites, etc., in your CTC. Employer's contributions regarding your ESI, PF, LWF, Gratuity, Leave, and Bonus will not reflect in your salary slip. However, it will be shown in your appointment letter or in an annexure to your appointment letter. Legally, the company will only show a 12% PF deduction through your salary, and the remaining 12% (employer's share) will be remitted to PF authorities along with your monthly PF contribution.

If your company had paid you a basic salary of Rs. 15,500/- from your joining date, you would have become an excluded employee from PF Membership, and there would not have been any PF deduction from your salary. There was an option for you to deposit 24% of the amount in your own recurring account. However, putting the amount in the PF account is always beneficial as you earn interest on a pro-rata basis, and it is exempted under section 80C of the Income Tax Act.

So, look for a better opportunity elsewhere at a suitable time.