Page 231 - Account 10

B. Deductions From Salary
At the end of every month, salary and allowances are distributed to the employees
of an office for the duties performed by them during the month. Some amounts as per the
rules and regulations and/or as the request of an employee are deducted from out of the
salary. Personnel provident fund (employees’ provident fund), income tax, tejarath sapati
(personnel loan), clearance of advance remained in the name of a certain employee, as
his request or according to the rules and regulations etc. are some common examples of
such deductions. The important deductions are introduced below with their accounting
treatment.

i. Personnel Provident Fund
It is that fund, which is raised by collecting the compulsory deduction from the
salary of the permanent employees of a government office, company or corporation. The
employer office contributes the cent percent of the deduction to the fund. In Nepal, the
personnel provident fund deduction is 10% of the total regular (monthly) salary and the
employer office contributes the cent percent of the deduction to the fund.
The entry for Personnel Provident Fund deduction is:

Dr. B.E. Salary 21111
Cr. Personnel Provident Fund
Cr. Treasury Single Account (TSA)

While depositing the Personnel Provident Fund deduction in the concerned office or A/c,
the entry is made as:
Dr. Personnel Provident Fund
Cr. Treasury Single Account (TSA)

Suppose, the total salary of the permanent employees of an office is Rs. 20,000; then the
calculation of gross salary and Personnel Provident Fund deduction is made as:
Salary 20,000
Personnel Provident Fund (10%) 2,000
The net salary receivable is 18,000

a. The total salary including the contribution of the office to the Personnel Provident
Fund becomes Rs. 22,000. (i.e. 20,000 + 2,000)
b. The Personnel Provident Fund (the sum of Personnel Provident Fund deduction and
contribution of the office) is Rs. 4,000 (i.e. 2,000+2,000)
Net salary payable (a-b) = 18,000
Total Personnel Provident Fund deposit 2,000+2,000) = 4,000

ii. Income Tax/Social Security Tax
Income tax is the amount of tax to be paid by the employees out of their salary. In
cash, only when an employee earns taxable salary, he/she is subject to pay such a tax. At
least 1% of salary should pay as social security tax to government by any organization.

230 Aakar’s Office Practice and Accountancy - 10 Journal Voucher 231