The Supreme Court of India in Regional Provident Fund Commissioner West Bengal vs Vivekananda Vidayamandir and others on 28th February 2019 held that special allowances paid by an employer to its employees have to be included in “wage” for deduction towards Provident Fund. It includes House Rent Allowance (HRA) also. That means earning salary including HRA and special allowances together up to Rs 15,000 will now be considered as “wage” for purpose of PF deductions. Earlier, only the basic wage + DA was taken into account for PF calculation.
The Supreme Court of India in an appeal clubbing 5 appeals considered that Special Allowances and House Rent allowance paid by an employer to its employees have to be included in “wage” for deduction towards Provident Fund.That means earning salary including HRA and special allowances together up to Rs 15,000 will now be considered as “wage” for purpose of PF deductions.
In 4 appeal cases among the 5 cases, High Courts allowed PF authority’s contention that the special allowances and House Rent Allowance (HRA) had to be taken into account as basic wage for deduction of PF. When appeal was made before the Supreme Court of India challenging the 4 orders of High Court, the Supreme Court ruled that there is no occasion to interfere on the factual conclusion of the Provident Fund authority and dismissed the 4 appeals by a bench comprising justices Arun Mishra and Navin Sinha. Thus, the Supreme Court validates special allowances and House rent allowance as part of wage for PF deduction.
In 5th case, where Kolkata High Court held that Special allowance was not linked to the consumer price index and not in the nature of dearness allowance and hence did not fall within the definition of basic wage- The Supreme Court examining facts and wage structure in this case and ruled that special allowances are essentially a part of the basic wage and employers cannot segregate ‘special allowance’ paid to his employee from basic wages for purpose of PF deductions.
In these appeals before the Supreme Court of India raise a question if the special allowances paid by an establishment to its employees would fall within the expression of “basic wages” for computation of deduction towards Provident Fund as per the provision of Employees’ Provident Fund and Miscellaneous provisions Act 1952.
As per Section 2(b) of the EPF & MP Act 1952, “basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages, but does not include-
- the cash value of any food concession;
- any dearness allowance, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance
- any presents made by the employer.
The Supreme Court is in the opinion that that the EPF & MP Act is a social welfare legislation made for protection of the workmen, and therefore, required to be interpreted in a broad manner. Special allowances are being paid to its employees are either variable or are linked to any incentive for production. The intention of respondent establishments was to exclude this special allowance from the purview of ‘wage’ and thus reduce the employer’s contribution to the employees’ provident fund .The wage structure and the components of salary have been examined on facts, both by the PF authority and the appellate authority under the Act, and arrived at conclusion that the special allowances including HRA are essentially a part of the basic wage. So, the apex court has ruled that employers cannot segregate ‘special allowance’ and HRA paid to his employee from basic wages for purpose of PF deductions.