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Latest EPFO Circular- Big Reduction In Your Take Home Salary?

Few days back a circular issued by Employee Provident Fund Organization (EPFO) asked employers to deduct PF from gross salary instead of basic salary. 

However, after the immense protest of various labor unions, government agreed to review it. Meanwhile we all can breathe easy.

How does it affect your take-home salary? 

Let’s try to understand the impact of this EPFO circular on your take-home salary with a salary break up example:

Salary Components (Per Month)	Amount (In Rs.)
Basic Salary	12,000
House Rent Allowance	9000
Conveyance Allowance	5500
Dearness Allowance	5500
Overtime Allowance	6000
Medical Reimbursements	7500
Entertainment Allowance	7500
Gross Salary	53,000

Provident fund contribution has two sides- the employer’s contribution and employee’s contribution. This is usually 12 per cent of your basic salary. These contributions are directly deposited to your PF Account and paid to employees when he retires or resigns.

For the above example, as of now Rs. 1440 (12% of 12,000/-) is being deducted from your salary as PF contribution and you are drawing Rs. 51,560 (53,000-1440) as take home salary.

But, if the government allows aforesaid EPFO circular to deduct PF on Gross Salary instead of on Basic Salary, Rs. 6360/- will be deducted from your gross salary and you will be taking Rs. 46,640/-(53,000-6360) as take home salary.

Now you will have Rs. 4920/- less to spend. But do not worry, as this will be deposited into your PF account and will give you a good lump sum amount at the time of your retirement

But till the time decision is pending on circular; hold your horses. We’ll keep you posted.

Related Blogs

a) Can your Ex-Employer withhold your PF?
b) EPF Online Portal- Easy access to your EPF Challan Receipt and PF Balance
c) Difference between EPF & PPF