Hello everyone, As per the new amendment PF Calculation is changed. previously we used to calculate 12 % of employee PF contribution from (Basic + DA) but after the amendment it need to be calculated from (Grass - HRA) so that 2 pay components are made compulsory in this calculation first one is BASIC its calculate 40-50% from Net salary, 2nd one is HRA, Now do we calculating 40% from Basic or Net salary
For Example : salary 18000 , basic 7200 its 40% form salary , HRA
1 - 40% from net salary its 7200
2- 40% from basic salary its 2880
Which one is right, so that we can arrive at PF wage to calculate PF?
From India, Dharmapuri
For Example : salary 18000 , basic 7200 its 40% form salary , HRA
1 - 40% from net salary its 7200
2- 40% from basic salary its 2880
Which one is right, so that we can arrive at PF wage to calculate PF?
From India, Dharmapuri
Even prior to the amendment PF was to be contributed on the whole salary excluding any allowance paid for house rent. When you pay HRA uniformly to all the employees without considering whether the employees reside in their own houses or rented houses then that will become a part of salary only. HRA is an allowance paid to certain employees who are asked to stay in rented premises for meeting business requirements. In your pay structure it is a component of salary and, obviously, you deduct the HRA component also when the employee takes leave (without pay). If the situation is that you pay full HRA if the employee is on leave, you can exclude it from PF qualifying wages.
Similarly, there is no ruling that basic wages should be so much of percentage of net/ take home salary. basic wages means the total wages as per agreement, whereas allowances shall be percentage of basic wage or on actuals like reimbursements.
However, if the salary exceeds Rs 15000, you can restrict the contribution to 12% of Rs 15000.
From India, Kannur
4250Similarly, there is no ruling that basic wages should be so much of percentage of net/ take home salary. basic wages means the total wages as per agreement, whereas allowances shall be percentage of basic wage or on actuals like reimbursements.
However, if the salary exceeds Rs 15000, you can restrict the contribution to 12% of Rs 15000.
From India, Kannur
There is no amendment of PF Act or rule in the recent past. Only there was one verdict from the Apex Court few years before guiding how to consider PF Gross to deduct PF contribution every month. What Mr. Madhu. T K has been explained is absolutely right. I would only like to add that after the implementation of new Labor Codes, the PF contribution will be on wages (@10). Wages should be determined properly as per definition of wages( Basic +DA).
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
Thank you for your valuable commends
House rent Allowance (HRA): HRA or House Rent Allowance: It is an amount paid out to
employees by companies for expenses related to rented accommodation.
HRA can be upto 50% of Basic for Metro Cities & 40% of Basic for Non-Metro Cities
Following three types of deduction schemes in general are followed by the Organizations in Optional
Cases:
Organization 1
Employer Cont. @12% of Actual (Gross – HRA)
Employee Cont. @12% of Actual (Gross – HRA)
Organization 2
Employer Cont. @12% of (Gross – HRA), upto limit of 15000
Employee Cont. @12% of (Gross – HRA), upto limit of 15000
Organization 3
Employer Cont. @12% of (Gross – HRA), upto limit of 15000
Employee Cont. @12% of Actual (Gross – HRA)
So HRA is the component to be consider important as per new verdict so is that valuable rementation to take 40% of basic for HRA or is there any other way
From India, Dharmapuri
House rent Allowance (HRA): HRA or House Rent Allowance: It is an amount paid out to
employees by companies for expenses related to rented accommodation.
HRA can be upto 50% of Basic for Metro Cities & 40% of Basic for Non-Metro Cities
Following three types of deduction schemes in general are followed by the Organizations in Optional
Cases:
Organization 1
Employer Cont. @12% of Actual (Gross – HRA)
Employee Cont. @12% of Actual (Gross – HRA)
Organization 2
Employer Cont. @12% of (Gross – HRA), upto limit of 15000
Employee Cont. @12% of (Gross – HRA), upto limit of 15000
Organization 3
Employer Cont. @12% of (Gross – HRA), upto limit of 15000
Employee Cont. @12% of Actual (Gross – HRA)
So HRA is the component to be consider important as per new verdict so is that valuable rementation to take 40% of basic for HRA or is there any other way
From India, Dharmapuri
An allowance which is paid to all employees should be part of basic wages.
HRA for any purpose including Income tax purpose as explained by Sasikumar venkatesh is an allowance only when it is paid separately and not along with salary. But many have interpreted it as a component of salary as fixed by the employer for his convenience.
If you are getting HRA, you will get it even if you take a few days' loss of pay leave.
If you make proportionate deduction of HRA, that itself proves that it is part of your salary.
Hence, the principle of PF contribution on gross salary less HRA will not stand though in practice it is being followed by many employers.
From India, Kannur
HRA for any purpose including Income tax purpose as explained by Sasikumar venkatesh is an allowance only when it is paid separately and not along with salary. But many have interpreted it as a component of salary as fixed by the employer for his convenience.
If you are getting HRA, you will get it even if you take a few days' loss of pay leave.
If you make proportionate deduction of HRA, that itself proves that it is part of your salary.
Hence, the principle of PF contribution on gross salary less HRA will not stand though in practice it is being followed by many employers.
From India, Kannur
Dear Sashikumar,
Even Mr. Madhu T K has been explained the position of HRA in details, you feel that PF Gross should be (Monthly Gross - HRA) which many organizations are following. You have mentioned that For Metro cities maxm. limit of HRA is 50% of basic and for non metro 40% of basic. There is no law in this regard. Only under ITAX Act for calculation of rebate under HRA there are three tests one of which is 50% and 40% conditions. You have also mentioned in Organization 3 employee contribution is 12% on actual basic which is VPF and not necessarily the amount will be 12% on actual basic. It may be 15% or 20% or any thing else of 15,000/- limit as VPF.
Now come what should be the % of HRA ( though I agree with Madhu T K ) - 40% of monthly gross or 40% of Basic. In your post you have mentioned that Basic is 40% of monthly gross, therefore to my opinion HRA should be 40% of Basic otherwise both Basic and HRA amount will be same and may not be accepted by the EPFO authority.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
Even Mr. Madhu T K has been explained the position of HRA in details, you feel that PF Gross should be (Monthly Gross - HRA) which many organizations are following. You have mentioned that For Metro cities maxm. limit of HRA is 50% of basic and for non metro 40% of basic. There is no law in this regard. Only under ITAX Act for calculation of rebate under HRA there are three tests one of which is 50% and 40% conditions. You have also mentioned in Organization 3 employee contribution is 12% on actual basic which is VPF and not necessarily the amount will be 12% on actual basic. It may be 15% or 20% or any thing else of 15,000/- limit as VPF.
Now come what should be the % of HRA ( though I agree with Madhu T K ) - 40% of monthly gross or 40% of Basic. In your post you have mentioned that Basic is 40% of monthly gross, therefore to my opinion HRA should be 40% of Basic otherwise both Basic and HRA amount will be same and may not be accepted by the EPFO authority.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
Thank you for all your knowledge sharing Since most experience persons like you are suggest to take HRA 40% From Grass so i have decided to take from Grass
From India, Dharmapuri
From India, Dharmapuri
Dear Mr Sasikumar Venkatesh,
You have raised a practical problem, but I guess you treating some components in improper way. For example:-
1. Net Salary (“first one is BASIC its calculate 40-50% from Net salary”):- Net Salary is secondary point (phase) of Gross & Basic Wages which comes after deducting PF, ESI, LWF, PT etc. from the Gross Wages. However, some deductions may be calculated on Gross and some on Basic Wages. In order to match negotiated Net Salary you can adjust the Basic and other components, but it is not practical to determine Basic on basis of Net Salary.
2. HRA:- You have presented 02 Form of HRA (i) PF Deduction & (ii) Income Tax Exemption. Both have different approaches. In a ideal situation the HRA should be 50% of Basic. So that all employees can avail maximum Tax Benefits (Metro and Non Metro). In the last you have mentioned “HRA 40% From Gross”, which is also not a right approach. HRA is always calculated to Basic not to Gross.
Seniors have shared their opinions. So it is advisable, first understand the different scenarios, consult the same with management than only choose the optimized option.
As per my opinion on basis of CTC you can choose from the below:-
1. Though the new Act still not implemented, but if you want to choose then keep 50% Basic (assuming rest 50% will be excluded salary to), pay 50% HRA of the Basic and cover rest in other components (in a way to make it tax friendly). For Example if CTC is 60,000 (Basic-30,000, HRA-15,000, PF-3,600, Bonus-2500, Gratuity-1443, PL-1250, Special Pay-6,207).
2. In r/o high salary you can apply Re-imbursement Policy (which will not count as part of the Wages). For example if CTC is 100,000 (Basic-40,000, HRA-20,000, PF-4,800, Bonus-3,332, Gratuity-1,924, PL-1667, Special Pay-8,277) and keep 20K in reimbursement (Fuel-10,000, Mobile-3,000, Tuition Fees-5,000, LTA-2,000).
3. If you want to follow the existing structure keep the Basic as 40%, Include 50% HRA (on Basic) and mention other components. For Example if CTC is 60,000 (Basic-24,000, HRA-12,000, PF-2,880, Bonus-2,000, Gratuity-1154, PL-1,000, Special Pay-16,966).
Hope the above will also help to clarify your doubts.
From India, Delhi
You have raised a practical problem, but I guess you treating some components in improper way. For example:-
1. Net Salary (“first one is BASIC its calculate 40-50% from Net salary”):- Net Salary is secondary point (phase) of Gross & Basic Wages which comes after deducting PF, ESI, LWF, PT etc. from the Gross Wages. However, some deductions may be calculated on Gross and some on Basic Wages. In order to match negotiated Net Salary you can adjust the Basic and other components, but it is not practical to determine Basic on basis of Net Salary.
2. HRA:- You have presented 02 Form of HRA (i) PF Deduction & (ii) Income Tax Exemption. Both have different approaches. In a ideal situation the HRA should be 50% of Basic. So that all employees can avail maximum Tax Benefits (Metro and Non Metro). In the last you have mentioned “HRA 40% From Gross”, which is also not a right approach. HRA is always calculated to Basic not to Gross.
Seniors have shared their opinions. So it is advisable, first understand the different scenarios, consult the same with management than only choose the optimized option.
As per my opinion on basis of CTC you can choose from the below:-
1. Though the new Act still not implemented, but if you want to choose then keep 50% Basic (assuming rest 50% will be excluded salary to), pay 50% HRA of the Basic and cover rest in other components (in a way to make it tax friendly). For Example if CTC is 60,000 (Basic-30,000, HRA-15,000, PF-3,600, Bonus-2500, Gratuity-1443, PL-1250, Special Pay-6,207).
2. In r/o high salary you can apply Re-imbursement Policy (which will not count as part of the Wages). For example if CTC is 100,000 (Basic-40,000, HRA-20,000, PF-4,800, Bonus-3,332, Gratuity-1,924, PL-1667, Special Pay-8,277) and keep 20K in reimbursement (Fuel-10,000, Mobile-3,000, Tuition Fees-5,000, LTA-2,000).
3. If you want to follow the existing structure keep the Basic as 40%, Include 50% HRA (on Basic) and mention other components. For Example if CTC is 60,000 (Basic-24,000, HRA-12,000, PF-2,880, Bonus-2,000, Gratuity-1154, PL-1,000, Special Pay-16,966).
Hope the above will also help to clarify your doubts.
From India, Delhi
Thanks all of your valuable comments
Let it be Straight in our organization We used to calculate 12% PF from (Grass -HRA) here Basic 40% form the net salary and HRA is calculate 40% form BASIC
For Example: 18000 is the Net salary on that 40% basic is 7200, and HRA 40% from basic is so that the (Grass - HRA ) will be 15120
Actual problem is if the PF Wage is exceed 15000 (PMKY )Eligibility in PF will get rejected so how could i actually over come in this issue
if i take HRA From Grass or Net this problem Will get resolve. Is there any other legal ways to overcome the issue
From India, Dharmapuri
Let it be Straight in our organization We used to calculate 12% PF from (Grass -HRA) here Basic 40% form the net salary and HRA is calculate 40% form BASIC
For Example: 18000 is the Net salary on that 40% basic is 7200, and HRA 40% from basic is so that the (Grass - HRA ) will be 15120
Actual problem is if the PF Wage is exceed 15000 (PMKY )Eligibility in PF will get rejected so how could i actually over come in this issue
if i take HRA From Grass or Net this problem Will get resolve. Is there any other legal ways to overcome the issue
From India, Dharmapuri
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Salary Sheet & PF PT Calculation & Challan Nov 2010.xls