BAJAJ BROKING
March 19, 2025
5 mins read
Provident Fund or PF can be simply understood as an instrument of investment where individuals voluntarily contribute to attain certain financial goals. It is a government-backed scheme that allows employees to contribute a part of their income to this savings scheme on a regular basis. Let's understand how this works.
The fund empowers employees to make small contributions, and based on the same, the employer also makes a lump sum similar contribution. These combined contributions eventually grow and become a considerable amount that can be used by the employee post their retirement as retirement savings.
When it comes to PF, there is particularly a lot of confusion related to PF contribution breakup. Individuals often struggle with questions like what is it, what is the breakdown of contributions, and much more. If you are also one of these people, then you're at the right place. Continue reading as we try and understand aspects of PF contribution breakup, including its maximum PF contribution, employer, etc.
EPFs or Employee Provident Funds are quite popular and preferred investment instruments in India. This makes it important for you to understand your PF contribution breakup. The breakdown ensures that you're aware of the structure of your salary and planned contributions. Further, it also comes in handy in financial planning, retirement planning, and managing your financial urgencies.
Generally, both the parties: employee and the employer contribute around 12% of the basic employee’s wage towards this fund. This in time, helps build the corpus of funds eventually.
Now that you know what a PF contribution is, and how it is relevant, let's move forward. Let's try and understand some of the key features of the breakup.
The PF contribution by an employer is fixed at 12% of an employee's wages. However, you must understand that this contribution comprises both: 8.33% is allocated to the EPS or Employee’s Pension Scheme and 3.67% is for EPF or Employee Provident Fund.
The employee contribution is also around 12%. However, these PF contributions can go down to 10% in special situations. This includes conditions like:
If the business has less than 20 employees.
If the business struggles with annual losses that are more or equivalent to their net worth.
If the business is classified sick or ill by BIFR.
In addition to the aforementioned PF contributions by an employer, they are also required to pay an additional 0.5% to Employees Deposit Linked Insurance Scheme or EDLI.
When it comes to maximum contribution by the employee, their complete amount is directed towards EPF.
The employer also has to incur some administrative charges for EPF and EDLI, which are somewhere around 0.01% and 1.1%, respectively. Thus, making the employer's contribution to around 13.61% of the scheme.
As mentioned earlier, the maximum limit of PF contribution by employee is fixed to be around 12%. However, as mentioned, this rate may go down to around 10% in certain circumstances. This includes.
If the number of company’s employees is not more than 19.
If the business has been categorised ill by BIFR.
Business engaged in coir, brick, beedi, jute, etc.
If the company is struggling with such an annual loss that is more or equal to their net worth.
If the salary limit of the company does not exceed ₹6,500.
As mentioned, earlier the minimum PF contribution by an employer is set at 12% of ₹15,000. Thus, making a total contribution of ₹1,800 on a monthly basis. However, employers are free to contribute more. This also means that both: employee and employers are supposed to make a monthly contribution of ₹1,800.
Earlier, this 12% limit was calculated in respect of ₹6,500. Therefore, the monthly contributions were around ₹780 to be paid by both: employee and the employer. This way the long-term savings and investment helps employees build a substantial fund and live independently post their retirement.
Here is a table to have a quick look at PF contribution breakup.
Contributions | Features |
EPF contributions |
|
EPS contributions |
|
EDLI |
|
Additional Read - EPF vs EPS
Having the benefits of the Provident Fund, you are able to have a sense of financial stability and security. The basic contribution of 12% from the employee and employer’s side ensures that you retire with a good saving scheme. Further, the breakdown of PF contribution ensures smooth financial planning. It also comes in handy in tax planning.
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In case of a defaulting employer, you may first consider verifying the default and approaching your employer regarding the same. However, in case of a not-so-satisfactory response, you may file an official complaint to the EPFO. Consider providing proofs like your salary statements and PF contributions.
No, it is not at all lawful for employers to deduct their shares of EPF contributions from employee salaries. In fact, such a deduction is nothing less than a criminal offence.
No, it isn't possible for an employee to continue contributing to the EPF even after leaving the organisation. For an employee to contribute, both the employer's and the employee’s contributions should be aligned.
An employee may calculate their employer’s EPF contribution by considering a few factors. Here is what you need to know.
In case you're a new female employee, you are required to make a monthly contribution of 8% of the base wage for the first 3 years. Post that period, the contributions may go up to 10 % or 12% of your basic wage.
For a male employee, you have to make 10% or 12% of monthly contributions.
EPF contributions by an employer are required to be made at 10% or 12% of an employee's basic wage.
In case an employee is denied the PF membership by their employer, they are suggested to reach out to the Regional PF commissioner at the local PF office.
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