Confused About PF Deductions from Leave Encashment? Seeking Clarity on Company Policies

Hello friends,

In our company where I've joined 6 months back, there are strange deduction systems in practice. If I ask anyone the reason (even the VP), I am always told this is the rule, but never the logic is given to me, since there actually is no logic behind it. The little bit of education that I have tells me there shouldn't be any PF deduction from leave encashment, which happens to be an annual benefit. But here, we have PF deduction from leave encashment. Can someone please explain the logic to me!!!!! :(

Hi,

It would be better if you did not use SMS language for postings in HR.

Regards,
Praveen

Your VP is right. Legally, leave encashment may attract PF deduction. In practice, many do not do this. I know some old companies practice this.

Siva

Dear colleagues,

Please update yourselves before answering any queries from anybody. The recent judgment of the Madras High Court has clearly spelled out that encashment of leave will not attract EPF contributions. Please refer to the Labour Law Reporter December 2007 issue, page number 1254.

Thanks,
L. N. Murty
Corporate Head - HR
GTN Industries Limited
Hyderabad

Thank you for the update. I have yet to see this judgment. I will go through it and make my comments.

If it is the Madras High Court judgment, are they going on appeal?

Siva

Hi all!

The attachment may be useful for more details.

- Hiten

Thanks. I went through the judgment. Now, in my opinion, Tamil Nadu will follow Karnataka, and Maharashtra will follow their HC order. More than anything else, the HC here has observed that the Department did not appeal against the order of the Tribunal in the State Transport Case. Hence, this judgment. This observation can definitely be questioned, and the final verdict seems to be based on this observation. Inaction in one instance cannot become law!! This observation of the High Court may be struck if this case goes to the Supreme Court. Other observations of the HC are worth looking at, but unfortunately, the Honorable judges at the end have based their judgments on a single observation that the Department chose not to appeal against the Order of the Tribunal in the State Transport case. They may go to the SC definitely on this case, and we may have to wait. Any information about their appealing? Anyone from Thiruvarur or Sanmar can throw some light on this.

Siva

Hi all!

I am quoting one of my friends on this judgment of what he understands about the judgment. I don't have much knowledge about IR and legal aspects. The person who has quoted this is a learned and experienced person in IR matters. I am sharing the below mentioned for your reference, if it sounds correct or useful to you. I repeat, this is just sharing of views and not an authenticated information or text of any book.

"Indian adjudication system is a 3-tier system. First-tier judgments (by Labour court, Industrial Tribunal, and National Tribunal) are subject to appeal in High courts, and High court's judgment could be challenged in Supreme Court, subject to certain applicable provisions. Till a contradicting judgment is delivered by another high court and finally law is settled by Apex court, any judgment issued by any High court, if cited during proceedings, is necessary to be considered by all first-tier courts while adjudicating any dispute." - Hiten

Hi Hiten,

You are right. But here, there are three judgments:
- Two stating that leave encashment attracts PF (Karnataka and Maharashtra). Hence, in these two states, all lower courts will be governed by this judgment.
- In Tamil Nadu, it is not to be considered for PF. All lower courts will follow this.
- In other states, lower courts can go with any one of these judgments until it is settled by the Apex Court. This is the current situation.

Siva

Hi,

In my previous company, a buyer audit (third-party auditor conducting an audit for the buyer agent) took place. During the audit, the auditor raised a query and marked it as a violation for not deducting PF for leave encashment. A deadline was given to deduct the same. After consulting with our legal consultant, he presented a copy of a judgment from the Madurai High Court, stating that there is no requirement to deduct PF for leave encashment. We submitted this copy during the re-audit, and the auditor discussed it with his senior, who ultimately accepted the explanation.

Therefore, it was confirmed that PF deduction is not applicable for leave encashments.

Regards,
Satheesh

Dear Airavat,

Please do not use SMS language; it is very difficult to understand. As for your query, earlier the Karnataka High Court judgment stated that we should deduct PF on leave encashment. However, later the Madras High Court provided a different verdict, stating that leave encashment does not attract deduction. In giving their judgment, the Madras High Court considered the Karnataka Court's judgment.

At present, I believe the judgment of the Madras Court will prevail. We, here in Delhi, are not deducting PF on leave encashment, and the authorities are also not objecting.

Thank you,
J S Malik