Is Our Provident Fund Calculation Right? Confusion Over Gross Salary Minus HRA

In the company I am associated with, we have been contributing to employees' provident fund at a rate of 12% of the basic salary. The basic salary is calculated at 30% of the gross salary. Thus, if an employee's gross salary is 10,000, the PF contribution would be 10,000 * 30% * 12% = 360 INR.

However, we have been informed by our PF office that the contribution should be 12% of the gross salary minus HRA. So, if the gross salary is 10,000, and the HRA is 1,200, the PF contribution would be (10,000 - 1,200) * 12% = 1,056.

Please advise if the above calculation using gross salary minus HRA is correct.

The law requires you to pay on basic and DA.

Allahabad High Court gave a decision saying that all other allowances, excluding overtime and HRA, are covered in the definition. However, the Supreme Court is hearing an appeal, and the government has put the implementation on hold.

So you are not required to change your procedure at the moment.

Reference on Provident Fund Contributions

Please read the following reference which I have come across:

The Gujarat, Madhya Pradesh, and Madras High Courts have held that all allowances, other than House Rent Allowance (HRA), will be treated as part of basic wages to attract provident fund contributions. Being aggrieved, some employers have filed a Special Leave Petition in the Supreme Court, vide SLP (C) No.8781-8782/12 under the caption of Surya Roshni Limited. After about six years, the appeals are now fixed for a final hearing on 03.07.2018.

It is pertinent to state here that the Madras High Court, in its judgment dated 17.04.2018 in W.P.No.22127 of 2014 titled as M/s. Techset Composition India (P) Ltd. v. The Regional Provident Fund Commissioner-(C&R), has concluded as follows:

“The learned counsel for the petitioner states that the 7(A) proceedings had been concluded and a final order has been passed. However, the order so passed need not be implemented till the final disposal of the case pending before the Hon'ble Supreme Court of India cited supra.”

Accordingly, those who are facing such proceedings under section 7-A of the Employees Provident Fund and MP Act can take up the plea that until the matters pending are disposed of by the Supreme Court, no adverse order should be implemented.