PF contributions limit set to INR 6500 per month by Supreme Court

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On May 27, 2014, the Employee Provident Fund Office issued a circular permitting India Inc. to limit its provident fund contributions against the required salary ceiling limit of INR 6,500 per month. Earlier, such PF contributions was calculated against the salary or full basic wages.

As per the Provident Fund regulations, PF is calculated at 12 per cent against the basic wages. INR 6,500 is the standard limit against which the PF is computed. Both the employer and employees can make decisions to make PF contributions on salary payments that exceed INR 6,500 per month. However, in such cases, the main issue was the availability of an option to return to lower levels of contributions. The EPFO has now put forward a method for the purpose of clarifying the

A HR director of a Bangalore based company confirmed that junior employees desired for higher cash flows as they may want to purchase a house and at the same time pay off their housing loans. So, the policy of saving through higher PF contributions does not always fascinate them.  A charter accountant added that different decisions made by the court on the issue of determining basic wages for calculating PF contributions have further complicated the matter.

EY India have welcomed the circular, stating that it will allow an employer to limit PF contributions against an amount of INR 6,500 per month, instead of making the calculation on a full monthly pay.

The SC also ruled that under the PF law, an employer cannot be forced to make contributions on pay that exceed the statutory ceiling limit. The provisions of the PF law which permits the employer to reduce the PF benefits of an employee will act as a hindrance whenever there is a negotiation with the employee for making full contributions on the monthly pay.

The circular issued by the EPFO clearly stated that the PF office will not raise questions on the order passed by the Supreme Court. However, EY also pointed out that the Supreme Court order and the PF circular is not applicable to international workers.