Wednesday, 12 December 2012

Employees PF Deduction is on Gross Salary

A recent decision taken by the EPFO (Employees Provident Fund Organisation) to deduct provident fund contributions from employees is based on gross salary. This will increase the savings of the employees and the expense of the employer. When employees regular contribution increases the contribution from the employer also increase. Ultimately the employee gets more saving from his or her own part and also from the part of the employer.

At present the Provident Fund contribution is on the basis of basic salary which includes basic and D.A (Dearness Allowance). But with the effect of this decision the contribution will be on the basis of Basic salary and all allowances, which is known as gross salary. So the Employer contribution will be more than earlier.

Some employers breaking the salary of employees into different allowances and it reduces their contributory provident fund liability. But now what ever may be the components of salary, the whole lot (gross salary) will be considered for PF contribution. EPFO decided to stop the trend of breaking salary into many parts to reduce the PF contribution.

Even if employees will get more savings, their take home salary will be less, because of more deduction as PF contribution. But this is not considered as a major problem while they get double benefit from their own savings and also from the part of the employer.

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