Your in-hand salary is likely come down significantly, if the Employee Provident Fund Office
(EPFO) goes ahead with its proposal to redefine the salary component used for calculation of provident fund contribution.
In its circular issued on 30 November, EPFO said, "All such allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as part of the basic wages." This necessarily means that conveyance, transport and special allowance would also be included in the salary component used for calculation of EPF contribution, effectively reducing your take-home salary. The EPFO later put the guidelines on hold
However, recent reports, citing sources, say that government will go ahead and notify the norms.
At present, 12 per cent of your basic salary is deducted for contributions towards EPF account. Your employer is also required to make a matching contribution. The employer contribution in most cases is included in the cost-to-company (CTC) or the gross salary of the employee.
An employee's salary is divided into various components, the major being the basic, conveyance, housing rent allowance (HRA) and special allowance. Besides, the salary could also include overtimes and performance incentives in form of bonus and commissions.
Bonus, HRA, overtime, present from employer, commission or any other similar allowances have been specifically excluded from the definition of basic wages.
But if the new guidelines come into effect, all such allowances would be included under basic wages, thereby increasing your provident fund contribution.