Provident Fund- should Special Salary be considered for 12% contribution?

This query is : Resolved

Davinder Singh (Querist)
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11 February 2008 Hi,
Request your expert opinion in the following matter:

- We have employees drawing salaries in the range of Rs 8000/- pm to
Rs 2 lacs PM CTC.

-The break up comprises components like
Basic,HRA,Conveyance,PF,Group Medical Insurance,LTA,Medical
Reimbursement and SPECIAL SALARY.

-On an average ,basic is around 25% of CTC and PF is calculated on
this amount.

-PF authorities are insisting that special salary too should have
been taken into account while calculating PF and want us to pay 24%
(12%+12%) on this component(ie special salary) for all the employees
who have worked with us for last 10 years.

Query- Is the stand of PF Department legally correct?

Thanks in advance for your responses.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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11 February 2008 The onus of substantiating that the special salary is something which does not attract PF is on the establishment. Otherwise, it is easy for an establishment to split, just for the sake of reducing the PF, the salary into various components.

Davinder Singh

Davinder Singh (Querist)
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13 February 2008 Thank you Mr Srinivasraghavan. How does one prove that? Are you suggesting that special allowance be linked to some special duties the employee performs?? On the other hand, if special allowance is given to everyone, it can be construed that it is avoidance of PF.
But Sir, I have seen the salary structure of many companies- and all have some sort fo a 'basket' where salary apart from Basic, DA, Conveyance, LTA, Medical etc is clubbed- called by different names: Special Allowance, Special Salary, City Allowance, Basket of Allowances. And that is not offerred for PF. I am sure that is a general trend.
Can this be taken as a defence? Going back 10 years and contributing 24% to PF will be 'killing', specially if many of the employees are not working with the company any more.

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S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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02 October 2008 If the special allowance is not explained as to their nature, it is liable to be construed by PF authorities as Liable for PF.

CA Sanjeev Kr Jain

CA Sanjeev Kr Jain (Expert)
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15 February 2009 Dear Davinder Singh

deduction of special allowance

one of our senior staff wants to show the part of total salary as ALLOWANCE TO MEET THE EXPENDITURE ON A HELPER WHERE SUCH IS ENGAGED FOR THE PERFORMANCE IF DUTIES OF AN OFFICE, (page A-18, para 13.3 point no 4 of ready reconer of sighania 31st edition) and he says that he has kept a driver / accountant to help him in discharging the duties of our senior staff. pl make me clear is it possible. Also clerify this allowance.