Pension and Old Age Security Contributions: The "Tax Relief" Components in PPh 21 for Permanent Employees

In the structure of Article 21 Income Tax (PPh 21) calculation for Permanent Employees, not all salary components are taxable. Certain elements actually serve to reduce the tax burden. Two vital components in this category are Pension Contributions (Iuran Pensiun) and Old Age Security (JHT) or Old Age Allowance (THT) contributions.

Treatment of Contributions Paid by the Employer

Many companies provide benefits in the form of Pension or JHT payments to pension funds approved by the Minister of Finance or to social security organizing bodies (such as BPJS Ketenagakerjaan).

From a tax perspective, money spent by the employer for employee pension and JHT/THT contributions is not an object of PPh 21 for the employee at the time the contribution is paid.

This means that when calculating monthly Gross Income, pension and JHT contributions paid by the office do not need to be added to the salary component. This differs from Work Accident Security (JKK) or Death Security (JKM) premiums paid by the company, which must be added to gross income.

Treatment of Contributions Paid by the Employee: As a Deduction

Conversely, pension and JHT/THT contributions deducted directly from the employee's salary or paid by the employee themselves have a special treatment. Laws and implementing regulations stipulate that these contributions are allowable deductions from gross income.

This deduction results in Net Income. The larger the pension contribution paid by the employee (and legally recognized), the smaller the Net Income, which ultimately reduces the Income Tax payable at the end of the year (Last Tax Period).

Calculation Example Illustration

Let's look at the case of Mr. C, a permanent employee.

• Basic Salary: Rp10,000,000.
• JHT paid by Company (3.7%): Rp370,000.
• JHT paid by Mr. C/Salary Deduction (2%): Rp200,000.
• Pension paid by Company (2%): Rp200,000.
• Pension paid by Mr. C/Salary Deduction (1%): Rp100,000.

Analysis for PPh 21:

In the PPh 21 calculation for the Last Tax Period (December), Mr. C's total annual gross income will be reduced by the total JHT (Rp200,000 x 12) and Pension Contributions (Rp100,000 x 12) before being multiplied by the tax rate.

Importance of Pension Fund Validity

It should be noted that for pension contributions to be recognized as a deduction, the contribution must be paid to a pension fund whose establishment has been approved by the Minister of Finance or has obtained a license from the Financial Services Authority (OJK). If the pension fund does not meet this requirement, the contribution paid by the employee cannot be used as a deduction from gross income.

Conclusion

Pension and JHT contributions play a unique role in PPh 21. If paid by the company, they are non-taxable objects (neutral). If paid by the employee, they become tax deductions (beneficial to the employee). Understanding this is crucial to ensuring precise Take Home Pay calculations and annual tax reporting.

Regulatory References:

• Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP).
• Government Regulation Number 58 of 2023.
• Minister of Finance Regulation Number 168 of 2023.