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  • Category: Tax Planning

    What is the difference between PF paid by employee and by company for EPF

    Have EPF account and wondering what is the difference between PF paid by the employee and by the company for EPF? Read on to now how PF contributions made by employee and company differs and does the companys PF contribution is a part of salary?

    Most organizations today offer the facility of Employee Provident Fund, wherein an employee can opt for PF from the company such that 12% of his basic pay will be deducted every month and transferred to his PF account. At the same time, company will also pay 12% of his basic pay for his/her PF account. I want to know if this amount paid by the company comes within the salary we are entitled to or is it something additional? What are the Tax exemptions on it?
  • #91202
    First of all the employer does not provide facility of Provident Fund but he is compulsorily bound to do so if the number of employees exceed 20. He is covered under the Employee Provident Fund Act, 1952.
    Even if the number of employees fall below 20 at any time during the year or in any year then too the Act continues to be applicable upon the company.

    When PF Deducted
    An employee drawing a basic salary of Rs.6500 has to compulsorily contribute to PF while an employee drawing a basic salary over Rs.6501 has an option to get PF deducted from his salary.

    PF is deducted from basic salary @12%. If 12% is deducted from the salary of employee then an equivalent amount is to be deposited by employer.

    Compound interest is available on the amount deposited to PF fund, which is declared by government every year and it may vary every year.

    PF amount deducted from salary of employee is available as deduction under section 80C.
    Amount deposited by employer or company is available to it as expense, when actually deposited.

    To be come a member of PF, Nomination Form no. 2 has to be filled up.
    To transfer your PF account from one company to another you need to fill Form 13.
    To withdraw money from PF you need to fill Form 19

    Accounting Period
    Accounting period of PF is from March to February every year.
    Government credits the interest compounded on PF balance in April every year.

    Provident Fund are of 4 types
    1. Statutory PF
    2. Recognized PF
    3. Unrecognized PF and
    4. Public Provident Fund.

    Statutory PF is for Government employees, semi government, university/educational institutions, etc., where both contribution and interest is tax free on repayment. Deduction under 80C also available at time of contribution.
    Statutory PF is set up under Provident Fund Act, 1925.

    Recognized PF is applicable on all establishment employing more than 20 employees. This is covered by Employees's Provident Fund and Miscellaneous Provisions Act, 1952.
    Employee's contribution: Deduction under section 80C.
    Employer's contribution: Deduction as expense. Any excess amount deposited over 12% is taxable and is included in gross salary of employee as income.
    Interest on PF: Exempt upto 9.5% anything above that will be included in gross salary.
    Repayment of sum on retirement, resignation, termination: Exempt in following cases:-
    1. Employee rendered continuous service of 5 years or more to his employer.
    2. In case the service of employee is terminated due to ill health, or due to closure of employer's business or of reasons beyond control of employee.
    3. If employee changes job but gets his account transferred under new employer who also maintains Recognized PF.
    In all other case, where repayment is made, an employee will be liable to taxed on earlier exempted amount.

    Unrecognized Provident Fund is a scheme which is not approved by commissioner of Income Tax.
    Employee's Contribution: No deduction under section 80C.
    Employer's contribution: Not taxable at time of contribution.
    Repayment: Employee's contribution is not taxable, but interest on it taxable under head income from other sources. Employer's contribution and interest on the same is fully taxable as profit in lieu of salary.

    Public Provident Fund is scheme for all (those who are employed and also who are not like businessmen). Anyone can open a PPF account and deposit a sum in this scheme. Maximum of Rs.100000 can be deposited in a year and deduction under 80C can also be claimed.
    All sum received is tax free.

    In your case you are most probably covered under recognized PF and accordingly you can get deduction under section 80C for the contribution made by you i.e amount deducted from your salary. At the time of repayment you can refer to the applicable provisions as mentioned above.

  • #91206
    Kindly appreciate Provident Fund is not a kind of facility which is offered by company to its employee. It is actually a kind of statutory deduction under Employee Provident Fund Act, 1952.

    Establishment having 20 or more employees need to fulfill the requirements of Employee Provident Fund Act, 1952 w.r.t. deduction etc. This act once applicable continues to remain applicable irrespective of number of employees.

    Appreciate further there is a difference between applicability of Employee Provident Fund Act, 1952 to an establishment and coverage of employee in PF.

    As per PF provisions employee drawing basic salary upto 6,500 per month is covered under PF act for the purpose of deduction and he/she have to contribute at the rate of 12%.
    Employer is also made liable by the act to contribute the same 12% to PF fund for the covered employee. The above positions means employee drawing basic salary more than 6,500 per month is not liable to contribute to the PF fund. However it is optional for him to contribute to the PF fund. In that case employer would not be liable to contribute to PF.

    PF contribution by employer is considered as part of CTC

    Kindly appreciate HR department of most of the companies consider employers contribution as part of cost to the company salary (CTC). In other words the annual package offer to the employee already covers the employer's contribution. Let me explain you with the help of an example:

    Basic salary - 6000
    HRA --- 3000
    CA --- 800
    Other Allowance 5000

    Total 14,800
    Employers contribution 720

    Total package P.M. 15,520

    In this case company would offer 15,520 pm to the employee as salary. Employee thought that his in hand salary would be calculated after deducting his PF contribution i.e. Rs. 720. But the reality is different. He would only get 15520-720-720== 14,080. Reason being his offering of 15520 already includes Rs. 720 of employer's contribution.

    If calculations are not clear or any other doubt persists please let me know.

    Employee can claim tax exemption under section 80C on his PF contribution.

    Warm Regards
    Ankur Garg
    Company Secretary and Compliance Officer

  • #91207


    PF means Provident Fund. PF or Provident Fund is calculated as a percentage of the salary ( Basic pay and the dearness allowance ). A part of your salary, calculated according to the PF percentage rate is deducted every month and deposited in the Provident Fund account.


    EPF means Employee Provident Fund. EPF is one of the main platform for all the people working in government or in private sector in terms of savings. under EPF scheme both employee and employer contribute equally to the EPF at the EPF rate. A member can withdraw up to 90% of EPF at credit after attaining the age of 54.

    Halloween Harmony

    From Good to Best, let me skip Better.

  • #91228
    The main query of the member is whether the employer contribution of 12% falls under the calculation of total salary and whether it is eligible for tax exemptions.

    Ratio of contribution

    The employees PF contribution is 12% of the basic + DA amount from the salary of an employee.

    The employer also has to contribute 12% of the basic+DA. This 12% is bifurcated into different heads of EPF and EPS. Apart from this, an employer has to pay certain administrative charges as a percentage of the salary calculated on the basis of  basic and DA. The contribution of the employer falls under following heads :

    Employees PF - 3.67%
    Employees pension scheme - 8.33%
    Employees Deposit Linked Insurance-0.5%
    EPF Administrative charges - 1.1%
    EDLIS Administrative charges - 0.01%

    Employer contribution ceiling limit

    There is a cap of Rs.6500/- as salary limit on the contribution of the employee. The amount to be contributed to Employees Pension scheme remains fixed at 8.33% of Basic and DA or Rs541/- whichever is less. The employer contributes the fixed amount to EPS and balance to EPF as per the rules.

    Calculation of salary

    The corporates calculate the 'cost to the company' (CTC) based on the total contribution of the employer. They add the employer contribution of PF and ESI to arrive at the CTC for the employee. 

    Withdrawal of PF amount as allowed by the EPF Act is allowed only from the employee contributions.

    If the PF amount is withdrawn before completion of 10 years of service by the employee, then the entire amount inclusive of pension amount is settled. However, if the employee withdraws after the expiry of 10 years, then the pension amount under EPS fund is not repayable and the employee becomes eligible to receive the pension after 58 years or 50 years as opted by the employee.

    Taxability status of EPF contributions

    The contributions by the employee are eligible for tax exemption under Section 80C of the Income Tax Act with a maximum limit of Rs100000 combined with other tax saving instruments.

    The employer contributions are not eligible for tax exemptions of any sort.

    Aparna Shankarraman

  • #91480
    There are two contributions towards Provident Fund PF (12% each by the Employer and the Employee)
    The entire 12% of Employee contribution goes to PF
    Out of the 12% of Employer contribution - 8.33% goes to Pension Fund and the rest 3.67% towards PF
    The primary difference between Provident Fund and Pension Fund is that while you can withdraw the entire amount accumulated in Provident Fund - with Pension Fund, you can withdraw to a max of 1/3rd of the amount.
    I hope this gives you some clarity...

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