I have seen this as a major point of confusion with most of the salaried people and hence I am going to talk about the difference between the three today with respect to their appearance on CTC letter and Salary slip. You would have certainly noticed a PF amount mentioned on your CTC (Cost to company) letter.
The PF amount in this letter is shown as an earning. But the confusion starts creeping in your mind the day your receive your first pay slip. Here you would find the PF amount written on the deductions side!!
You immediately start ringing the suspicion bells and call your finance department to understand what is wrong here. Well, no need to panic as everything is correct in your pay slip. It is just a matter of understanding the concept which is explained here:
EPF vs PPF Vs VPF
There are three (3) types of provident fund amounts that are associated with a salaried person.
- Employer Provident Fund or Provident Fund (EPF): Employers in India with an employee base of 20 or more employees are required to comply with the Employee provident fund schemes run by government. This scheme’s aim is to contribute some portion (generally 12%) of your monthly salary towards your retirement benefits.
A small part of it (a chunk from 12% itself) is also contributed towards pension scheme.
This is the amount which your company contributes to YOUR PF account from their own pocket. Hence, it is a cost for them which they are incurring on you. So, it qualifies to be part of CTC. The amount of PF that is mentioned on your CTC letter is actually employer contributed PF.
This amount is tax free for you. It is NOT included in the yearly tax rebate amount of INR 1 lakh for investments.
- Employee Provident Fund (VPF) : Hmm..So, you understood the employer PF? If yes, then this one should not be difficult to digest.
Government PF scheme also mandates that you as an employee should also contribute to YOUR PF account monthly i.e. an equal portion (generally 12%) or any other amount that you want to.This is also known as Voluntary Provident Fund (VPF).
The amount that you see on your pay slip as deduction is actually this amount and NOT the PF (Employer provident fund). The employer PF is neither added to your income nor deducted. Hence, it is NOT reflected in your pay slip but is shown on CTC letter.
Since VPF is taken out of your pocket, it is shown on the deductions side of your salary slip. This is also the reason behind NOT showing VPF explicitly in your CTC letter. VPF is an expense for you and NOT your employer.
This amount is considered as an investment by you and forms part of the yearly tax rebate investments (currently capped at 1 lakh per year).
- Public Provident Fund (PPF): This is NOT related to your employer at all. It is basically a personal provident fund account that you can open with any of the designated banks like SBI etc.. It is like a savings account that you can open any time. Also, there is NO obligation to open it. If you want, you can open and put money in it.
This account is again a long term investment account and helps you save income tax as the amount credited to this account is allowed to be included in your tax rebate investments (Currently capped at INR 1.5 lakh per year). Although, you can have total investments of 1 Lakh for saving tax, the PPF account’s terms and conditions only allow maximum of INR 1,50,000 to be deposited in a single financial year.
Please note that the amount in this account is neither mentioned on CTC letter nor on your pay slip.
But yes, if you declared it in your company to save tax, it will be mentioned on FORM 16 (Salary and tax calculation form issued by your employer).
I hope I have answered all the questions regarding the above amounts with respect to CTC, salary slip and income tax rebate.
Please write in your questions and comments in comments section. I will be happy to help you with answers.