Navigating EPF Deductions: Can We Avoid Full Wage Deductions with Basic and HRA Split?

Dear all,

I am working for a shopping mall where most of the employees are covered under EPF, and their wages are less than 15000. As of now, we are deducting their EPF based on 40% of the basic salary. According to a new Supreme Court order, we are required to pay EPF on all allowances except a few. Can I show 40% of the basic salary plus 60% of HRA so that there is no need to deduct EPF on the total wages? Or is there any other way, as our employees are also not interested in having PF deducted from their total wages?

Please advise.

Understanding HRA and Salary Components

You can get an exemption for the HRA portion only if you provide it as a separate allowance. For example, if your employees reside in rented houses and you pay their rent, this is considered HRA. The HRA you mention is part of the salary only, and it is also higher than the basic salary. If you pay 100 rupees as wages, it is meant for essentials like food, clothing, and shelter. Are you suggesting that employees should eat less, spend less on clothing, but live in a mansion? Why don't you contribute it to the entire salary? After all, how much will it come to? Make it restricted to Rs 15,000 in the case of those having more than Rs 15,000 as gross salary.

Dear Madhu Garu, thank you so much for your valuable reply and response. We have conveyed to the employees and explained all the advantages. However, they do not want more Provident Fund (PF) to be deducted. Sir, please clarify the following:

Case 1:

Basic: 14000
HRA: 5600
Conveyance: 5600
Other Allowance: 2800

In this case, do we have to calculate the EPF on 22400, or can I restrict it to 15000?

Case 2:

Basic: 10000
HRA: 4000
Conveyance: 2000
Other Allowance: 1000

In this case, do we have to calculate the EPF on 13000? Please advise.

Regards

Restricting PF Contribution

In the first case, you can restrict the PF contribution to 12% of Rs 15,000. For that, you have to add one more column in your payroll named "PF qualifying salary" or "PF contributing salary" and apply the formula.

Considering HRA Exemption

In the second case, you also have to go for Rs 15,000. However, considering that HRA is exempted (although it is paid only to eligible employees, not all), you can justify paying it on Rs 13,000. Anyway, that is higher than the basic salary that you have fixed, and that is fair enough.