Will you take home lesser salary for bigger retirement kitty?

There is a good possibility that your take home salary might shrink in the future but your retirement kitty will swell. According to a Times of India report , Employee Provident Organisation issued a circular on November 30.

The report said that various allowances paid to employees will be to be added back to the basic salary and provident fund contributions computed against this higher value. This will mean a lower take home pay.

[caption id=“attachment_553532” align=“alignleft” width=“380”] But there is another clause in the law that says that PF contributions by both parties have to be on a maximum notional level of Rs 6,500 per month. Reuters[/caption]

Until now most companies take into account only basic and dearness allowance to compute 12 percent PF figure that employees as well as employers pay. But definition of wages has been a controversial issue. Why so? PF authorities say that to reduce the PF contribution, companies simply split wages into various categories like allowances.

As per the TOI report: Last year, the Madras High Court and the Madhya Pradesh High Court in two separate cases had held that various allowances paid by the employer under different heads such as conveyance, education, food concession, medical, special holidays, night shift incentives, city compensatory allowance, etc., will be qualified as basic wages under section 2(b) of the PF Act and needed to be included while computing the PF contribution.

But there is another clause in the law that says PF contributions by both parties have to be on a maximum notional level of Rs 6,500 per month, instead of the entire salary (including various allowances).

You can read the report here.