Understanding PF Deductions: How Should Employee and Employer Contributions Be Calculated?

Hi all,

Employee's Contribution Deduction from Gross Salary

Can an employee's contribution be deducted from the gross salary each month before deducting the employer's share from the monthly CTC?

For example, Mr. X's monthly CTC is ₹26,800 with the following structure:

- Basic: ₹15,000
- HRA: ₹7,500
- Allowance: ₹2,500
- PF @12%: ₹1,800
- Total: ₹26,800

So, can a company first deduct the employee's contribution to PF from the basic salary and then deduct the employer's share too? Is it acceptable to calculate as 26,800 - 1,800 - 1,800 = 23,200 as in-hand salary? Or should it be calculated as 26,800 - 1,800 = 25,000?

I really need to understand this. When they said the employer's share is part of CTC, do both PF shares become part of the salary structure of CTC, or just one PF? If only one PF amount is part of the salary structure, how can the employee's contribution be deducted from the basic salary after that?

Any explanation will be appreciated.

Thank you in advance!

Understanding CTC and Employee Contributions

The concept of CTC is what the organization spends on the employee, not what the employee spends on themselves, either for statutory compliance (PF) or voluntarily (VPF). Therefore, the question does not arise to consider any spending by the employee as a part of CTC.

23,200/- less PTAX, if any, will be the take-home salary when the monthly CTC is 26,800/-. Employee contributions to PF and PTAX, if any, are not part of CTC as these expenses are not incurred by the employer for the employee.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity

Understanding CTC and Salary Deductions

The CTC (Cost to Company) represents an establishment's total expenditure on an employee. For example, Mr. X receives a monthly salary structured as follows:

1. Basic: ₹15,000 + HRA: ₹7,500 + Allowance: ₹2,500 = ₹25,000 Gross
Cash in hand for the employee is: ₹25,000 - PF @12%: ₹1,800 = ₹23,200
However, the company's expenditure for that employee is ₹25,000 + PF @12%: ₹1,800 = Total ₹26,800, which is the CTC.

2. If the establishment is covered under ESI, the company can first deduct the employee's Basic: ₹15,000 + HRA: ₹7,500 + Allowance: ₹2,500 = ₹25,000 Gross Salary.
Net salary is: ₹25,000 - (PF @12%: ₹1,800 + ESI 0.75%: ₹157.50) = ₹23,042.50
But the company's expenditure for that employee is ₹25,000 + PF @12%: ₹1,800 + ESI 3.75%: ₹787.50 = Total ₹27,588, which is the CTC.

Hope you understand the concept.