A fresh decision by the Employees' Provident Fund Organisation (EPFO) is slated to slash the take-home salary of those in service. 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.
A fresh decision by the Employees' Provident Fund Organisation (EPFO) is slated to slash the take-home salary of those in service. 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. However, the good part of the move is that there will also be an increase in the share of the PF that is contributed by the government or any other employer.
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Though the move means an increased contribution to the PF on the part of the employer, it will not be of any benefit to those earning in the Cost to the Company (CTC) format. This is because the expenditure of a company on an employee getting a certain CTC is a fixed amount, and all the contributions to the PF would be deducted for that amount itself.
To understand the implication of the move by the EPFO, consider an employee getting a salary of Rs 33,000 per month, of which Rs 25,000 is the basic salary, travel allowance is Rs 5,000 and another allowance is Rs 3,000. As of now, the PF amount on the basic salary of Rs 25,000 amounts up to Rs 6000. But as per the new system, with other allowances getting added to the basic salary, the PF amount would be Rs 7,920. Now if half of the share is contributed by the employer, the take-home salary gets cut by Rs 960, but an equal amount would get added to the PF. But in case of those earning in the CTC format, then the deduction in the salary would be Rs 1920.
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.