Provident Fund Dilemma: Should We Include Allowances in PF Contributions? Seeking Advice!

Dear All,

I am currently employed as an Administrative Assistant in an educational institution. We recently underwent a Provident Fund (PF) inspection. Our salary structure consists of Basic, DA, HRA, and the remainder of the salary is allocated to an unspecified allowance section. We typically pay PF on the sum of Basic and DA. Following the inspection, the PF authorities have instructed us to pay PF contributions on the allowance section as well. However, these allowances have not been specifically delineated into categories such as retaining, travel, etc.

I seek your advice on whether the allowance portions should also be considered for PF contributions.

Regards, R Dilip

Provident Fund Contribution Guidelines

As per the law applicable to the Provident Fund, the total salary should qualify for contribution. Even though HRA is excluded, any allowance that is not compensatory cannot be excluded from the scope of PF wages. However, PF authorities used to consider HRA as an excluded allowance. At the same time, if the salary (Basic plus DA) exceeds Rs 15,000, the Enforcement Officer cannot require you to include the allowances. Normally, the salaries paid to employees and teachers in a school would be higher than Rs 15,000. So, what is the issue? Either exclude them from EPF or restrict the contributions to a salary of Rs 15,000.

Please refer to the Vivekananda Vidyamandir case judgment of the Supreme Court in February 2019: https://indiankanoon.org/doc/126246109/

According to the judgment, all allowances that follow the UNO rule (Universal, Necessary, Obligatory) are considered a part of the basic salary. The judgment essentially states that you need to pay Provident Fund (PF) on the Gross Salary minus House Rent Allowance (HRA). It is advised to make the payments promptly; otherwise, you may receive a demand notice requiring you to pay with retrospective effect, leading to potential significant issues.

I concur with Mr. Madhu T.K's perspective. If the basic salary and dearness allowance (DA) of your employees exceed ₹15,000, there is no requirement to include any allowances in the calculation of EPF wages. However, if the basic and DA are less than ₹15,000, you must incorporate allowances into the EPF wages.