Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
What PF is computed on
PF is not a percentage of total CTC. It is computed on basic wages plus dearness allowance (and retaining allowance). Both employer and employee contribute 12% of this. The statutory wage ceiling is ₹15,000 a month, so the mandatory minimum is 12% of up to ₹15,000 — though many employers contribute on actual higher basic. Confirm the current ceiling.
The allowance trap
Employers sometimes keep ‘basic’ artificially low and load pay into allowances to reduce PF. Supreme Court rulings have held that allowances which are ordinarily, necessarily and uniformly paid to all employees are effectively part of basic wages for PF — so splitting pay into generic allowances doesn’t always avoid PF. Structuring pay correctly matters.
A worked example
Example: an employee with ₹25,000 basic + ₹10,000 HRA + ₹5,000 special allowance — PF is at least on the basic (and arguably on the special allowance if uniformly paid), not on HRA. On the ₹15,000 ceiling basis, the minimum contribution is 12% of ₹15,000. Getting the salary structure right keeps PF correct and defensible at audit. Our team can review your pay structure.