A new decision by the Employees Provident Fund Organisation (EPFO) is set to slash the take-home salary of those in service. The EPFO has decided that the Provident Fund of an employee will now be deducted not on the basic salary, but on the gross income. However, the good part is that there will also be an increase in the PF share contributed by the government or the employer.
Though it means an increased contribution to the PF on the part of the employer, it will not benefit those earning in the Cost to the Company (CTC) format. This is because a company’s expenditure on an employee getting a certain CTC is a fixed amount, and all the PF contributions would be deducted from that amount itself.
To understand it better, consider an employee getting a salary of Rs 33,000 p.mm, of which Rs 25,000 is the basic salary, Rs 5,000 is the travel allowance and Rs 3,000 is towards another allowance. Currently, the PF amount on the basic salary of Rs 25,000 amounts up to Rs 6000. But under the new system, the PF amount would be Rs 7,920. Now if half of the PF 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, the deduction in the salary would be Rs 1920.
The EPFO, justifying the move, says that several companies, to save their PF contribution, often break up the basic salary in many parts. With this, 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, given to an employee under Section 2b of the PF Act, must be added to the basic salary for PF deduction.