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EPF deductions to be based on Gross Salary, Employers contribution to increase.




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11 Dec, 2012 8:35p.m.

A decision by the Employees' Provident Fund Organisation (EPFO) will increase the PF contribution by the employer thus making more benefits to the employees via more savings. However the deductions from the salary towards the employees contribution to the PF effectively reducing the take home salary. Under the current law, employers till date deduct 12 percent of the salary and transfer it to EPFO for provident fund and pension schemes. The EPFO has decided that Provident Fund of an employee will now not be deducted on just the basic salary, but will now be calculated on the gross income.  Thus, various allowances such as conveyance, educational allowance, medical allowance, etc., will have to be taken into consideration while computing the PF contribution. Though the move means an increased contribution to the PF on the part of the employer.

According to the decision, the PF will be deducted on the gross income, and not just the basic salary of an employee.
Justifying the move, EPFO officials have said that several companies, in order to save their contribution to the PF of an employee, often break up the basic salary in several parts. With this move, the EPFO intends to stop this practice. Notably, the Madras High Court and the Madhya Pradesh High Court had in 2011 observed that the allowances for travel, food, education and other purposes, being given to an employee under Section 2b of the PF Act, must be added to the basic salary for the deduction of the Provident Fund.


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