Reg. EPF on labour payment

This query is : Resolved

Purna Chandra Patra (Querist)
Follow

26 December 2010 I m a petty contractor in construction sector. whenever RA bill is raised, the principal contractor (under whom I am contracting, the employer) is deducting @ 6% from the billed amount. the break-up is :-
TDS 1% - as I have the PAN
EPF 2.5%
Retention Money 2.5 % to be released at the year end.

(1+2.5+2.5 = 6)

Any one please help me clarify that under what Act or Rule the principal contractor is authorised to deduct 2.5% towards EPF. Please.

Regards

PC Patra

Purna Chandra Patra

Purna Chandra Patra (Querist)
Follow

09 January 2011 repeating question - please answer this

I m a petty contractor in construction sector. whenever RA bill is raised, the principal contractor (under whom I am contracting, the employer) is deducting @ 6% from the billed amount. the break-up is :-
TDS 1% - as I have the PAN
EPF 2.5%
Retention Money 2.5 % to be released at the year end.

(1+2.5+2.5 = 6)

Any one please help me clarify that under what Act or Rule the principal contractor is authorised to deduct 2.5% towards EPF. Please.

Regards

PC Patra

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
Follow

20 July 2025 Regarding your query about the 2.5% deduction towards EPF by the principal contractor, here is the clarification:

Is the principal contractor authorized to deduct 2.5% towards EPF from your RA bills?
No specific provision in the EPF Act or Rules authorizes the principal contractor to deduct 2.5% from your payment as EPF contribution.

Explanation:
EPF Contributions are Statutory Deductions:
Under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the employer and employee both contribute to EPF.
The employer is responsible to deduct and deposit the employee’s share of contribution and add their share accordingly.
The EPF deduction is typically from employees' wages, not from payments to contractors.
Contractor as Employer:
If you, as a petty contractor, employ laborers who are covered under EPF, you are responsible to deduct and deposit EPF contributions for those workers.
The principal contractor cannot deduct EPF contributions from your payment on your behalf, unless there is a specific contractual agreement.
TDS and Retention Money:
The 1% TDS deduction is under the Income Tax Act.
The 2.5% retention money is typically withheld by the principal contractor as per contract terms.
Why might the principal contractor deduct 2.5%?
Sometimes, principal contractors deduct an amount towards EPF compliance assurance, especially in the construction sector, to ensure the subcontractor deposits EPF correctly.
But this deduction is not governed by EPF law, rather by contractual terms between the principal contractor and you.
This deduction acts like a security deposit or retention until the EPF dues are confirmed to have been deposited.
What you should do:
Check your contract agreement with the principal contractor for any clause regarding EPF deduction.
If there is no such clause, you can question the deduction.
Maintain your own EPF compliance for your workers.
You can request the principal contractor for proof of deposit of EPF against the deducted amount.
If you face issues, you may contact the Regional EPF Commissioner or labour department for clarification.
Summary:
There is no direct provision in EPF Act authorizing principal contractor to deduct 2.5% EPF from your payment.
Such deductions are usually contractual and for compliance assurance.
You, as contractor, are responsible for EPF payments of your laborers.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now