Understanding PF Deductions: How to Calculate from Basic Salary and DA?

Dear All, Good afternoon. Please clarify if PF is deducted from Basic + DA. If an employee is receiving a Basic salary of 15,000 and DA of 2,500, how should we deduct the PF from the employee's salary? Thank you.

PF Deduction on Salary

It is not necessary that PF should be deducted on a maximum salary of Rs 15,000. You can deduct it on Rs 17,500 also. It is also not necessary that PF should be deducted on the entire Basic salary and DA paid. What the law says is that if the salary of an employee exceeds Rs 15,000, then PF shall be deducted at least on Rs 15,000. In the present case, the employer can deduct PF either on Rs 17,500 or Rs 15,000. If the practice of the establishment is to restrict the contributions to Rs 15,000, then you can take Rs 15,000 as the base for PF deduction.

In such a scenario, the payroll will have a column for "PF qualifying salary" on which the PF will be deducted. In this case, in the Gross salary column, you can write Rs 17,500 and in the PF salary column, you can write Rs 15,000. Then the PF will be deducted on Rs 15,000.

Yes, PF (Provident Fund) is typically deducted from the sum of Basic and Dearness Allowance (DA). In the scenario where an employee has a Basic salary of 15,000 and a DA of 2,500, the total amount considered for PF deduction would be 17,500 (15,000 + 2,500). PF is usually calculated as a fixed percentage of this total amount, which is set by the government. The exact percentage can vary, but it's often around 12% of the total Basic and DA. Therefore, in this case, the PF deduction would be approximately 12% of 17,500, which is 2,100.

Thank you for the information. I have another question regarding PF. Currently, our company deducts PF from every employee based on their actual basic salary, such as 30k, 35k, etc. Is it possible to deduct PF from an employee with a salary of only 15k per month when their actual basic is more than 15k? We want to confirm if we can deduct actual PF from some employees and only 15k from others. Please advise.

I would differ from Raghunath because nowhere in the EPF & MP Act is it stated that PF should be deducted and contributed on the total of Basic and DA if the same exceeds Rs 15,000. The employer and/or employee can very well restrict their contribution to 12% (or such other percentage that the government shall fix) of Rs 15,000. As such, if the sum of Basic and DA exceeds Rs 15,000 or is Rs 17,500, there is no obligation either to the employee or the employer to contribute PF at the rate of 12% of Rs 17,500. But either or both can do it on 12% of Rs 15,000.

If some employees want to contribute on Rs 17,500 or any higher amount like Rs 30,000 or Rs 35,000, they can do so. Even if the employees are contributing on higher salaries, there is no compulsion for the employer to contribute their share on the same salary. At the same time, if the employer's share of contribution is a part of remuneration, as in the case of CTC, wherein whatever cost the employer incurs on an employee will be put as part of remuneration payable, then the employer can also contribute on such higher salaries. (Had it been done earlier, the employee would have gotten the benefit of a higher pension.)

Simply put, an establishment can have different rates of PF, not lower than 12%, and different PF qualifying salaries, say Rs 15,000 or higher than Rs 15,000, for employees and the employer. That is, there can be employees contributing on Rs 15,000 and employees contributing on actual salaries higher than Rs 15,000. There can also be employees in respect of whom the employer is contributing on a salary of Rs 15,000 and employees in respect of whom the employer is contributing on actual salaries that are higher than Rs 15,000.

However, it is advisable to avoid the employer's contribution on different PF qualifying salaries because it may lead to disputes from those employees for whom the employer had restricted their contribution to 12% of Rs 15,000. In fact, a contribution on a higher salary would be part of an understanding between the employees and the employer, and the same is reflected in their CTC and take-home salary. Employees who receive lower amounts as employer contribution may raise it as a dispute in the future. Therefore, it is good to follow the same practice for all employees, either paying it on Rs 15,000 or on actual salaries. Employees can choose either Rs 15,000 or actual salary because it gives them a tax benefit by contributing to PF.