Provident fund calculation will be on Gross salary instead of Basis pay:
You may end up saving additional in the months ahead with the staff Provident Fund Organization (EPFO) preparation to re-notify a new definition of “compensation” that may include all of your allowances, amid intense lobbying against the move by trade bodies.
Currently, employers escape by conducive only twelve-tone music of the fundamental pay and dearness allowance, that is not paid by most corporations, towards their share of “matching” provident fund and therefore the workers Pension theme contribution. So, for several thousand workers, the fundamental pay remains constant, while increments square measure glided by manner of increased or new allowances. In most cases, the liabilities for the worker goes up owing to the pay hike — and firms earn tax credits on salary-related expenses — but the statutory provident fund contribution remains unchanged.
![]() |
Provident fund new calculation |
As a result, EPFO notified the changes last year but had to withdraw the circular in the wake of protests from employers and therefore the perception that take-home salaries would return down. Even now, trade is resisting the move but EPFO is expected to go ahead with the plan as a panel created by the labour ministry to vet the proposal has supported it.
This will also impact take home salary of employees drastically who are in high pay salary.
For example some is getting a salary of Rs.50000.00 where in under the existing calculation which is based on Basic only it may be around 12% of Basis salary only. In our case assuming Basis salary will be around Rs.8000.00 it comes to around Rs.960.00 on one side and employer will match same amount if both is not borned by employee which is part of his CTC.
If new rule is implemented it will deduction on one side will be Rs.6000.00 (50000.00*12%) just one side and it will be a total deduction of Rs.12000.00 on both side. This will have huge impact on the take home salary on an employee who will have lot of commitments in terms of home loan and other monthly obligations.
Government officials, however, countered the industry argument on the new compensation definition, saying EPFO membership was mandatory only for employees earning Rs 6,500 a month. Anyone beyond that level could opt out. Although it may be difficult for several employers to give the opt-out option, reworking of the salary structure to ensure that the wage bill doesn’t shoot up can be on the cards.