Supreme Court of India ruling on applicability of PF on allowances
<p>The Supreme Court of India in its ruling of 28 February 2019 on whether various allowances such as conveyance allowance, special allowance, education allowance, medical allowance, etc. paid by an employer to its employees fall under the definition of &lsquo;basic wages&rsquo; for calculation of Provident Fund contributions, has ruled that allowances of the following nature are excluded&nbsp; from &lsquo;basic wages&rsquo; and are not subject to Provident Fund contributions: </p> <ol> <li>Allowances which are variable in nature; or</li> <li>Allowances which are linked to any incentive for production resulting in greater output by an employee; or</li> <li>Allowances which are not paid across the board to all employees in a particular category; or</li> <li>Allowance which are paid especially to those who avail the opportunity.</li> </ol> <p>In the case before the Supreme Court, based on data available on record and factual conclusion of the Provident Fund Authorities, it was held that various allowances paid by the employer to its employees as part of salary structure are covered under the definition of &lsquo;basic wages&rsquo; for calculation of Provident Fund contributions since they did not fulfil the aforesaid conditions.</p> <p>It may be noted that as per proviso to Para 26A of the Provident Fund Scheme, Provident Fund contributions are limited on INR 15,000 per month where employee&rsquo;s monthly pay exceeds INR 15,000.</p> <p>Companies and other employers will need to review the impact of this ruling on their salary structure and PF contributions.</p> <p>Given the urgency and importance of this matter, you may please call us to discuss the further course of action.</p>