Dear Members,
The statutory limit of salary to mandatorily become a PF member is Rs. 15,000 (if he is not already a member). Can you please guide? Do not consider international workers. If the attached circular is still valid, does the employer have the right to limit his contribution to Rs. 15,000 only, irrespective of the employee's contribution? Please confirm.
I have recently come to know that PF authorities and PF consultants are suggesting that the basic salary should be at least 50% of the gross salary. Does this apply to an employee with a gross salary of Rs. 100,000 and a basic salary of Rs. 50,000? Or is this 50% (basic of gross) clause only for employees whose gross salary is Rs. 15,000 or less? Please share your experience in this regard.
Regards, Puran Dangwal
From India, New Delhi
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11The statutory limit of salary to mandatorily become a PF member is Rs. 15,000 (if he is not already a member). Can you please guide? Do not consider international workers. If the attached circular is still valid, does the employer have the right to limit his contribution to Rs. 15,000 only, irrespective of the employee's contribution? Please confirm.
I have recently come to know that PF authorities and PF consultants are suggesting that the basic salary should be at least 50% of the gross salary. Does this apply to an employee with a gross salary of Rs. 100,000 and a basic salary of Rs. 50,000? Or is this 50% (basic of gross) clause only for employees whose gross salary is Rs. 15,000 or less? Please share your experience in this regard.
Regards, Puran Dangwal
From India, New Delhi
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Understanding PF Ceiling Limit and Basic Pay
As far as I comprehend your post, the PF ceiling limit and limiting basic pay are two separate points. Basic pay is limited to 40% or a maximum of 50% of the total CTC. This gives an advantage to employees when claiming HRA exemptions and also allows them to raise their PF contribution above the ceiling limit. PF deductions, whether to be done on the ceiling limit or actual basic pay, are mostly mutually agreed upon between organizations and employees. However, an organization ends up paying higher administrative charges on PF if the deduction is based on actual basic pay rather than the ceiling limit.
For employees earning a gross of 15,000 or less, the general practice is to adjust the basic pay as per the applicable Minimum Wages.
Hope this helps.
Regards, Rahul Chhabra
From India, Delhi
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As far as I comprehend your post, the PF ceiling limit and limiting basic pay are two separate points. Basic pay is limited to 40% or a maximum of 50% of the total CTC. This gives an advantage to employees when claiming HRA exemptions and also allows them to raise their PF contribution above the ceiling limit. PF deductions, whether to be done on the ceiling limit or actual basic pay, are mostly mutually agreed upon between organizations and employees. However, an organization ends up paying higher administrative charges on PF if the deduction is based on actual basic pay rather than the ceiling limit.
For employees earning a gross of 15,000 or less, the general practice is to adjust the basic pay as per the applicable Minimum Wages.
Hope this helps.
Regards, Rahul Chhabra
From India, Delhi
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Dear Mr. Chhabra, thank you for taking the time to reply. I would like to restate my query.
Basic Pay and PF Contribution
Some PF authorities and PF consultants suggest that the basic pay should not be less than 50% of the gross salary. Is this true even if the basic salary exceeds Rs. 15,000? Is there any official documentation to support this viewpoint from the PF department? If my gross salary is Rs. 60,000 and my basic salary is Rs. 18,000, could the PF authority question my employer regarding the disparity (basic salary being less than 50% of gross), or would they not inquire since my basic is above the basic PF ceiling of Rs. 15,000, albeit less than 50% of gross?
Employer Contribution Cap
Furthermore, according to the circular I have already attached, an employer can cap their contribution to the PF ceiling salary, which stands at Rs. 15,000. Does this imply that if my basic salary is Rs. 18,000 (gross Rs. 60,000), I can contribute based on the full basic amount, i.e., 12% of Rs. 18,000, while my employer is restricted to contributing on Rs. 15,000 only?
If this is the case, what is the rationale behind the equivalent contribution by the employer? I presume this occurs when both the employee's and employer's contributions are capped at 12% of Rs. 15,000.
Regards,
Puran
From India, New Delhi
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Basic Pay and PF Contribution
Some PF authorities and PF consultants suggest that the basic pay should not be less than 50% of the gross salary. Is this true even if the basic salary exceeds Rs. 15,000? Is there any official documentation to support this viewpoint from the PF department? If my gross salary is Rs. 60,000 and my basic salary is Rs. 18,000, could the PF authority question my employer regarding the disparity (basic salary being less than 50% of gross), or would they not inquire since my basic is above the basic PF ceiling of Rs. 15,000, albeit less than 50% of gross?
Employer Contribution Cap
Furthermore, according to the circular I have already attached, an employer can cap their contribution to the PF ceiling salary, which stands at Rs. 15,000. Does this imply that if my basic salary is Rs. 18,000 (gross Rs. 60,000), I can contribute based on the full basic amount, i.e., 12% of Rs. 18,000, while my employer is restricted to contributing on Rs. 15,000 only?
If this is the case, what is the rationale behind the equivalent contribution by the employer? I presume this occurs when both the employee's and employer's contributions are capped at 12% of Rs. 15,000.
Regards,
Puran
From India, New Delhi
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PF Contribution Guidelines and Basic Pay Considerations
PF authorities have not laid down any guidelines on the percentage of basic pay vis-a-vis total compensation. They have defined the ceiling limit for PF contributions. Although basic pay not only determines PF contributions but also impacts HRA exemptions, Leave Encashment, Gratuity, etc. Therefore, a lower basic pay reduces the CTC, tax exemptions, and other benefits of an employee. In my experience, the PF authority will not question if your contribution is at the ceiling limit or higher; however, they will inquire if your PF contribution is decreased from the actual basic to the ceiling limit in a particular financial year.
The circular you mentioned is missing. Both the employee and employer have to contribute their share of PF based on the same basic wage. If an employee wishes to contribute more, they can opt for Voluntary PF.
Hope this information is helpful.
Regards, Rahul
From India, Delhi
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PF authorities have not laid down any guidelines on the percentage of basic pay vis-a-vis total compensation. They have defined the ceiling limit for PF contributions. Although basic pay not only determines PF contributions but also impacts HRA exemptions, Leave Encashment, Gratuity, etc. Therefore, a lower basic pay reduces the CTC, tax exemptions, and other benefits of an employee. In my experience, the PF authority will not question if your contribution is at the ceiling limit or higher; however, they will inquire if your PF contribution is decreased from the actual basic to the ceiling limit in a particular financial year.
The circular you mentioned is missing. Both the employee and employer have to contribute their share of PF based on the same basic wage. If an employee wishes to contribute more, they can opt for Voluntary PF.
Hope this information is helpful.
Regards, Rahul
From India, Delhi
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Dear Mr. Puran, rightly said by Mr. Chhabra, the PF authorities have nothing to do with Basic Wages. However, as per my practical experience, the PF Officials (Enforcement Officer) insist that PF contributions should be deposited as per the MW Act of the appropriate government. The Basic Wages should not be less than the MW Act.
If we check the Wages definition under the Act, it states that contributions should be paid on gross salary (except HRA). Generally, we have accepted the PF Wages as Basic Wages of the CTC.
PF Wages when Basic Wages exceed Rs. 15,000
Regarding your second point about what should be the PF Wages if the Basic Wages (being 50% or so) exceed Rs. 15,000, I would like to say the employer can restrict the PF wage ceiling to Rs. 15,000 (for both shares). However, if the employee wants to contribute at a higher rate, they can opt for VPF (as already explained by Mr. Chhabra).
Please find attached an article where some important court judgments are referred to, and the author has explained their view in general language (refer to Page 4). Though the article alone cannot be treated as a valid document for framing any rule, if you can extract the court judgment, it can be produced as a legal document.
Hope the above will serve the purpose.
From India, Delhi
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If we check the Wages definition under the Act, it states that contributions should be paid on gross salary (except HRA). Generally, we have accepted the PF Wages as Basic Wages of the CTC.
PF Wages when Basic Wages exceed Rs. 15,000
Regarding your second point about what should be the PF Wages if the Basic Wages (being 50% or so) exceed Rs. 15,000, I would like to say the employer can restrict the PF wage ceiling to Rs. 15,000 (for both shares). However, if the employee wants to contribute at a higher rate, they can opt for VPF (as already explained by Mr. Chhabra).
Please find attached an article where some important court judgments are referred to, and the author has explained their view in general language (refer to Page 4). Though the article alone cannot be treated as a valid document for framing any rule, if you can extract the court judgment, it can be produced as a legal document.
Hope the above will serve the purpose.
From India, Delhi
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Sir,
Thanks for your input. Is it fair that for a gross salary of Rs. 1 Lac, the basic salary is 15k in the salary structure?
In the above case, if we keep the basic at 50K (without reducing other related benefits like Gratuity, leave salary) but restrict PF contribution to Rs. 15K, can we do so? I am of the opinion that we should inform the dealing agent at RPFC in advance in writing if we make this change.
Your thoughts?
Regards,
Puran
From India, New Delhi
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Thanks for your input. Is it fair that for a gross salary of Rs. 1 Lac, the basic salary is 15k in the salary structure?
In the above case, if we keep the basic at 50K (without reducing other related benefits like Gratuity, leave salary) but restrict PF contribution to Rs. 15K, can we do so? I am of the opinion that we should inform the dealing agent at RPFC in advance in writing if we make this change.
Your thoughts?
Regards,
Puran
From India, New Delhi
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Dear Mr. Puran,
There could be two scenarios:
1. Minimum Compliance as laid down in the Act/Law.
2. There is no bar for maximum employee welfare. That all depends upon the establishment's strategic approach towards employee welfare, profitability, budget, etc.
What I suggested is acceptable as per law. If you want to deduct and deposit PF on a higher salary, you can do it. Moreover, in the CTC concept, the employer PF is also included in CTC. So you can deduct PF on higher wages as well.
I think we don’t need to inform the RPFC in advance. In case any member joins on Basic Wages more than 15k and doesn’t want to make PF deductions, then we need to fill out some form and obtain employee consent for non-PF deduction. Senior members can throw more light on the matter.
From India, Delhi
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There could be two scenarios:
1. Minimum Compliance as laid down in the Act/Law.
2. There is no bar for maximum employee welfare. That all depends upon the establishment's strategic approach towards employee welfare, profitability, budget, etc.
What I suggested is acceptable as per law. If you want to deduct and deposit PF on a higher salary, you can do it. Moreover, in the CTC concept, the employer PF is also included in CTC. So you can deduct PF on higher wages as well.
I think we don’t need to inform the RPFC in advance. In case any member joins on Basic Wages more than 15k and doesn’t want to make PF deductions, then we need to fill out some form and obtain employee consent for non-PF deduction. Senior members can throw more light on the matter.
From India, Delhi
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Dear Puran,
EPFO has given the option to deduct PF at actual basic or ceiling limit if actual basic is higher than the ceiling limit. Thus, yes, one can have an actual basic pay of Rs. 50,000 but can be contributing to PF at the rate of the ceiling limit. There is no need to inform the EPFO unless you are decreasing the PF contribution from actual basic to the ceiling limit, but not in the case of vice versa.
Regards,
Rahul
From India, Delhi
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EPFO has given the option to deduct PF at actual basic or ceiling limit if actual basic is higher than the ceiling limit. Thus, yes, one can have an actual basic pay of Rs. 50,000 but can be contributing to PF at the rate of the ceiling limit. There is no need to inform the EPFO unless you are decreasing the PF contribution from actual basic to the ceiling limit, but not in the case of vice versa.
Regards,
Rahul
From India, Delhi
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Dear Sir,
Attached, please find the Supreme Court judgment on Basic wages for PF Contribution on 28 Feb 19. How can we define the basic wages for calculations of PF? What is the limit of HRA in connection with basic wages? What is your opinion on the Supreme Court judgment?
From India, Pune
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Attached, please find the Supreme Court judgment on Basic wages for PF Contribution on 28 Feb 19. How can we define the basic wages for calculations of PF? What is the limit of HRA in connection with basic wages? What is your opinion on the Supreme Court judgment?
From India, Pune
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Dear friends,
There is no act stipulating what should be the basic pay and what the other allowances should be, except in the case of minimum wages and wage revisions notified by the central government and state governments category-wise/industry-wise from time to time. However, this doesn't mean the basic pay should be greater than or less than other allowances. For example, if you study the pattern followed by pay commissions (central and state), banks, etc., FDA/VDA used to be more than double the basic pay. This phenomenon undergoes changes as and when FDA/VDA is merged/absorbed into basic pay during wage settlement agreements, raising it, and VDA is linked to the price index published periodically for further revision, either quarterly or half-yearly.
Now, the Supreme Court in its judgment dated 28.2.19, attached in the previous posts, clearly defined how various allowances should be reckoned for the purposes of recovery towards EPF. This judgment has settled all doubts regarding whether or not certain allowances should be included or excluded for EPF calculations. The impact of the judgment obviously adds to the financial outgo of employers, and employees' EPF accounts get a boost, resulting in some having a lighter take-home pay. I don't think the judgment could be disputed, sidetracked, or ignored in any way. The financial strain on employers, however big or small, notwithstanding, the judgment is a welcome measure as it has settled all disputes and interpretations, providing the long-awaited clarity.
Regards
From India, Bangalore
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There is no act stipulating what should be the basic pay and what the other allowances should be, except in the case of minimum wages and wage revisions notified by the central government and state governments category-wise/industry-wise from time to time. However, this doesn't mean the basic pay should be greater than or less than other allowances. For example, if you study the pattern followed by pay commissions (central and state), banks, etc., FDA/VDA used to be more than double the basic pay. This phenomenon undergoes changes as and when FDA/VDA is merged/absorbed into basic pay during wage settlement agreements, raising it, and VDA is linked to the price index published periodically for further revision, either quarterly or half-yearly.
Now, the Supreme Court in its judgment dated 28.2.19, attached in the previous posts, clearly defined how various allowances should be reckoned for the purposes of recovery towards EPF. This judgment has settled all doubts regarding whether or not certain allowances should be included or excluded for EPF calculations. The impact of the judgment obviously adds to the financial outgo of employers, and employees' EPF accounts get a boost, resulting in some having a lighter take-home pay. I don't think the judgment could be disputed, sidetracked, or ignored in any way. The financial strain on employers, however big or small, notwithstanding, the judgment is a welcome measure as it has settled all disputes and interpretations, providing the long-awaited clarity.
Regards
From India, Bangalore
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Yes, Chandan. Except when a reduction in salary results in a consequent reduction in PF & ESI, it may be possible if and when the incumbent's salary is decreased due to penal action awarded as a 'punishment' for any disciplinary action taken by the appropriate authority. However, no reduction is possible solely to lower PF & ESI contributions.
Washing Allowance for PF Calculation
Hi Raghav, regarding the 'Washing Allowance' for PF calculation, please refer to the relevant issue in this link - https://taxguru.in/corporate-law/pf-...pt-hra-sc.html. A copy of the judgment is attached.
From India, Bangalore
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Washing Allowance for PF Calculation
Hi Raghav, regarding the 'Washing Allowance' for PF calculation, please refer to the relevant issue in this link - https://taxguru.in/corporate-law/pf-...pt-hra-sc.html. A copy of the judgment is attached.
From India, Bangalore
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No contribution on salary exceeding statutory limit under EPS 8.11.2013.pdf
Salary Sheet & PF PT Calculation & Challan Nov 2010.xls