C. Deduction Components | 2. Provident Fund Employee
Provident Fund (PF) is a central government-backed social security scheme designed to provide financial stability and retirement benefits to employees. It is managed by the Employees’ Provident Fund Organization (EPFO) under the Ministry of Labour and Employment.
📋 PF Deduction – Employer’s Responsibility:
- PF deduction from employee salary is mandatory (subject to eligibility)
- PF = 12% of (Gross Salary – HRA)
- If (Gross – HRA) > ₹15,000/month → PF is capped at ₹1,800/month
- Employer matches the contribution amount (₹1,800 max)
🧾 Example Calculation:
If an employee’s monthly:
- Gross Salary: ₹20,000
- HRA: ₹5,000
Then:
- PF = (₹20,000 – ₹5,000) × 12% = ₹15,000 × 12% = ₹1,800
If (Gross – HRA) is less than ₹15,000, PF is calculated on the actual amount (no cap).
⚠️ PF Opt-Out Criteria:
An employee can opt out of PF only if both conditions below are satisfied:
- ✅ The employee has never been registered under PF before (no UAN/PF account)
- ✅ (Gross – HRA) is more than ₹15,000/month
If either condition is not met, PF deduction is mandatory.
✅ Summary:
- Mandatory for eligible employees
- PF = 12% of (Gross – HRA), capped at ₹1,800/month
- Employer matches contribution
- Opt-out allowed only if:
- No previous PF registration/account
- (Gross – HRA) exceeds ₹15,000/month
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