As per New Notification issued by EPFO & Supreme court ruling, Employer can cap PF contribution limit to Rs 6500 Basic Salary.
On May 27, 2014, the Employee Provident Fund Office issued a circular permitting Companies to limit its PF contributions against the required salary ceiling limit of INR 6,500 per month. Earlier, such PF contributions was calculated as 12% of Basic Salary.
Under Provident Fund (PF) regulations, PF is computed at 12% (for both the employer and employee contributions) against ‘basic wages’. The minimum statutory limit against which such PF is to be computed is Rs 6,500 per month. The employer and employees have an option to make PF contributions on salary payments in excess of Rs 6,500 per month.
In those cases where contributions were made in excess of the statutory limit, the issue was whether an option is available to revert to lower levels of contributions (i.e.: a contribution computed against the statutory limit of Rs 6,500). The EPFO has now clarified on this issue.
In June 2014 – As per another notification – EPFO has increase the minimum threshold from Rs 6500 to Rs 15000. Read News
How does this notification impacts the employee’s Salary
If the new notification is implemented by your employer, your monthly take home salary may increase. See the calculation below.
However, the balance in your PF account will be reduced and you will have less PF balance on retirement.
As per the calculation above, if the PF amount is calculated on Rs 6500 and not on full Basic salary, then your Take home salary will increase. The employer will give more amount in allowances rather than putting that into PF. At the same time, your PF contribution will also be reduced.
In the case of Marathwada Gramin Bank Karamchari & others, the Supreme court had held: Where the employer makes contributions towards the PF on pay in excess of the statutory ceiling limit, these may be discontinued at any time. The SC had also held that an employer cannot be compelled to contribute on pay in excess of the statutory ceiling limit under the PF Law. The provisions of the PF law, which does not allow the employer to reduce an employee’s PF benefits will only operate as a bar when there is an agreement with the employee to make contributions on full monthly pay.
EY points out that the Supreme Court ruling and the PF circular do not apply to ‘international workers’ (expatriate workers from India who are contributing to PF) as there is no statutory ceiling for them under the PF law.
Full Text of the Circular is as follows:-
EMPLOYEES PROVIDENT FUND ORGANISATION
MINISTRY OF LABOUR AND EMPLOYMENT, GOVERNMENT OF INDIA, DELHI
Ref. No. LC(637)2009/Vol.I/203- Dated: 27.05.2014
Subject: Filing of Review Petition against judgement of Hon’ble Supreme Court of India in SIP No. 1205/2009 in the matter of Marathwada Gramin Bank Employees Union Vs. Management of Marathwada Gramin Bank – regarding.
Reference: This office letter No. LC-2(637)2009/MH/12780 dated 08.10.2013
Please refer to the above Cited letter wherein views on the issue of filing Review Petition/implementation of the order dated 09.09.2011 of the Hon’ble Supreme Court of India in SLP No. 1205/2009 in the matter of Marathwada Gramin Bank Karamchari Sangathan & Ors. Vs. Management of Marathwada Gramin Bank, were called for.
2. The views expressed by the Zonal Addl. Central Provident Fund Commissioners as to whether review petition need to be filed or not has been examined at Head Office. Having analysing the pros and cons of the issue, Competent Authority felt that there is no point in going for review against the said judgement of Hon’ble Supreme Court of India.
3. All the Regional Provident Fund Commissioners-In-charge of Regional /Sub-Regional Offices are, therefore, directed not to force employers to contribute over and above the statutory wage ceiling in respect of their employees. However, option is available for the employees to contribute beyond the statutory wage ceiling if they so desire subject to the conditions enumerated under para 26(6) of the Employees’ Provident Funds Scheme, 1952.
Addl. Central Provident Fund Commissioner (Compliance)
Also read other posts
August 2014 – EPFO re-initate process to club allowances with basic pay, ordered inspection
June 2014 – EPF threshold raised from Rs 6500 to Rs 15000 – New EPFO Notification
May 27 2014 – Employer can cap PF contribution limit to Rs 6500 Basic Salary – New EPFO Notification & Supreme court ruling
Nov 2012 – New PF contribution rule may reduce your take home salary