Can Employees Choose to Limit Their PF Contribution to Match Employer's Cap?

Greetings Members,

If a working professional has a basic salary of Rs. 20,000, the ideal PF contribution should be 20,000 * 12% = 2400 (Employee Contribution). The employer, as a cap, pays only 1800. Now, if an employee wants to, can he limit his share to 1800 too? If yes, would I need to show a decreased basic salary of 15000, or can he continue to take 20000 as basic pay and still keep contributing only 1800 irrespective of the actual 12% contribution?

Regards, Preet

Hello,

Regarding the Employee Provident Fund (EPF) contribution in India, both the employee and the employer are required to contribute a certain percentage of the employee's basic salary. The employee's contribution is typically 12% of the basic salary, while the employer's contribution is also 12% of the basic salary, subject to a cap.

Example of EPF contribution

In your example, if the basic salary is Rs. 20,000, the ideal employee contribution would be Rs. 20,000 * 12% = Rs. 2,400. However, the employer's contribution is capped at Rs. 1,800. Now, if the employee wants to limit their share to Rs. 1,800, they have a couple of options:

1. Decreased basic salary: The employee can choose to have a reduced basic salary, let's say Rs. 15,000. In this case, the employee's 12% contribution would be Rs. 15,000 * 12% = Rs. 1,800, matching the employer's contribution.

2. Continue with a higher basic salary: Alternatively, the employee can continue to have a basic salary of Rs. 20,000, but still contribute only Rs. 1,800 towards the EPF. The employee's contribution can be limited to Rs. 1,800, irrespective of the actual 12% contribution.

It's important to note that the EPF contribution is a mutual agreement between the employee and the employer. As long as the employer is contributing the mandatory amount, the employee has the flexibility to contribute a lower amount if they wish to do so.

You can have the increased salary as the basic salary. Whenever the salary increment is given, the increase shall be reflected in the basic salary as well. However, you can still maintain the PF qualifying salary (the salary on which the PF is contributed) at Rs 15,000. It is not necessary that in order to have Rs 1,800 as the monthly PF contribution, you should always set the basic salary of the employees at Rs 15,000. You should increase the basic pay while keeping the PF qualifying salary at Rs 15,000. For salary calculation purposes, there will be an additional column named "PF Salary" where the basic salary on which PF will be calculated will be provided.