In India, the Provident Fund (PF) is a mandatory retirement savings scheme governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. This scheme ensures that employees have a secure financial future upon retirement. The PF scheme applies to establishments with 20 or more employees. Employees earning up to ₹15,000 per month are mandatorily covered, while those earning above this threshold can opt in voluntarily.
Key Points:
- Employer and Employee Contributions:
- Both the employer and the employee contribute 12% of the employee’s basic salary plus dearness allowance.
- The employer’s contribution is split into 8.33% for the Employees’ Pension Scheme (EPS) and 3.67% for the Employees’ Provident Fund (EPF).
- Wage Ceiling:
- Contributions are typically calculated on a maximum basic salary of ₹15,000 per month.
- Employers usually restrict their contributions to 12% of ₹15,000, amounting to ₹1,800 per month.
- Higher Employee Contributions:
- Employees can opt for Voluntary Provident Fund (VPF) to contribute more than the mandatory 12%.
- Employees’ contributions can be based on their actual basic salary, even if it exceeds ₹15,000, while employers restrict to ₹15,000.
- Administrative Charges:
- Employers must pay administrative charges of 0.50% of the total wages.
Monthly Compliance:
- Deposits: Contributions must be deposited by the 15th of the following month.
- Returns: Employers must file monthly returns (Electronic Challan cum Return) and annual returns (Forms 3A and 6A).
Benefits:
PF accumulations provide a retirement corpus with interest, and contributions to PF and VPF offer tax benefits under Section 80C of the Income Tax Act.
Example Scenarios:
- Standard Contribution:
- Basic Salary: ₹30,000
- Employer Contribution: 12% of ₹15,000 = ₹1,800
- Employee Contribution: 12% of ₹30,000 = ₹3,600
- Higher Contribution (VPF):
- If the employee opts for VPF, they can contribute more than ₹3,600, based on their actual basic salary of ₹30,000.
- Example: If the employee decides to contribute 20% of ₹30,000, the contribution would be ₹6,000.
Addressing the Offer Letter Query:
When your offer letter mentions the PF amount as part of retiral benefits, it reflects the total package the company provides, including both employer and employee contributions. Here’s why the company deducts PF from your salary each month:
- Offer Letter and CTC: The PF amount included in the offer letter as part of retiral benefits is part of your Cost to Company (CTC). This means the employer’s contribution to PF is factored into your overall salary package, but it is not deducted from your monthly salary.
- Monthly Deductions: The amount deducted from your salary every month is your own mandatory PF contribution. According to the law, you need to contribute 12% of your basic salary plus dearness allowance to your PF account. This deduction is reflected in your salary slip and directly deposited into your PF account.
- Employer’s Contribution: While your salary slip shows a deduction for your PF contribution, the employer also contributes an equal percentage (12% of ₹15,000) to your PF account, but this is part of your overall compensation package and not deducted from your salary.
In summary, your salary deduction for PF is your personal contribution, while the employer’s contribution is part of your total compensation but not deducted from your salary. This ensures that you save for retirement while understanding how both contributions fit into your overall compensation.