Can an Employee Adjust Their PF Contribution to Avoid TDS? Seeking Clarity on EPF Rules

Dear All,

Can salary be adjusted for PF contribution?

The facts are as follows:

1. The basic salary of an employee is Rs. 600,000. Both the employee and the employer are paying a 12% contribution. This has been happening for the past 4 years.

2. Thus, annually, both the employee and the employer are contributing Rs. 8,64,000 each as PF contribution.

3. After the recent amendment to the Income-tax Act, the contribution by the employer exceeding Rs. 750,000 attracts TDS. Hence, the employee is not interested in contributing to or receiving employer contributions exceeding Rs. 750,000. Therefore, he wants to have his salary rationalized.

4. I understand that in such cases, where an employee opts for PF contribution, he can restrict his contribution to Rs. 1800 per month (Rs. 21,600 per year) onwards up to any amount up to the limit of his salary.

5. Can he restrict PF contribution to Rs. 750,000 per year (even though he had been contributing a higher amount earlier)?

6. Please share the provisions of the EPF Act to answer yes or no. If the answer is yes, would there be any implications on the employer?

Thank you.

Voluntary PF Contribution in the EPF Act 1952

The Voluntary PF contribution is provided in the EPF Act 1952 and the EPF Scheme. Section 6 of the Act and paragraph 29 of the EPF Scheme read as follows:

Section 6: Contributions and matters provided for in Schemes

The contribution to be paid by the employer to the Fund shall be ten percent of the basic wages, dearness allowance, and retaining allowance, if any, payable to each employee, whether employed directly or through a contractor. The employee's contribution shall be equal to the employer's contribution and may, if the employee desires, exceed ten percent of their basic wages, dearness allowance, and retaining allowance, subject to the condition that the employer is not obliged to pay any contribution above their required contribution under this section.

Paragraph 29 of the EPF Scheme on Contribution

The contribution payable by the employee under the Scheme shall be equal to the contribution payable by the employer for that employee. However, for any employee to whom the Scheme applies, the contribution may exceed ten percent or twelve percent of their basic wages, dearness allowance, and retaining allowance, subject to the condition that the employer is not obliged to pay any contribution above their required contribution under the Act.

Section 6 of the Act and the proviso to Paragraph 29 make it clear that the statutory norm of equal contribution between employer and employee does not apply to VPF contributions. When it is stated that the employer is not obliged to pay any contribution above their required contribution under the Act, it follows that the employer has the right to contribute an amount less than the voluntarily contributed amount by the employee. This means that while the employee can continue to contribute Rs. 8,64,000 to the EPF Scheme, the employer's share could be limited to Rs. 7,50,000.