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Provident Fund contribution: Can employer deduct his share from your salary?

Hemant Abhishek
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Provident Fund contribution by employer and employee 2020: Provident fund is an important retirement planning and tax-saving facility for salaried individuals. Apart from social security, it also provides contributing employees the flexibility to withdraw part of their funds for weddings, while constructing or buying a residence, or for other purposes allowed by the rules. But a lot of misinformation exists, especially among the young workers regarding PF contributions, withdrawal rules, and employer’s contribution.

One such common query we often hear is regarding the employer’s contribution to the PF corpus. Some professionals mistakenly believe that just like the employee’s contribution, the employer’s contribution is also deducted from the employee’s salary.

Can the employer do this? The answer is no. Rules laid down by the Employees’ Provident Funds Scheme clearly state that the contribution made by the employer cannot be deducted from the member/employee’s salary component. This means that the employer can under no circumstances recover this amount from the salary of staff members.

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Here’s how provident fund contributions are calculated:

  1. As per EPF rules, 12 per cent of an employee’s Basic salary+Dearness Allowance is contributed to their Employee Provident Fund account.
  2. A matching sum is contributed to the provident fund by the employer.
  3. From the employer’s EPF contribution, 8.33 per cent goes towards the Employee Pension Scheme (EPS) and the remaining to the PF account of the employer. This EPS component is calculated on the basic pay of Rs 15,000, or actual basic pay, whichever is lesser.
  4. In case an employee’s basic pay exceeds Rs 15,000, the EPS contribution would be 8.33% of Rs 15,000, which comes up to Rs 1,250 per month.

The salary breakup of an employee mentions a take-home salary, gross salary, and cost-to-company. An employee’s gross salary is the amount they receive before deductions. The take-home or net salary is the amount they receive after all the applicable deductions. The cost-to-company is the total cost borne by the company in engaging the resource during a year. The employee’s provident fund (PF) contribution is deducted from their gross pay.