### Provident Fund Explained - Part 1

It's a pain to look at people when they seem so confused about PF. The PF deductions look like rocket science until you understand them. This blog post is for all my friends who are either confused, or not bothered, or have given up trying to understand the "Employee Provident Fund" called shortly as PF.

Warning..!! - These calculations are just try to summarize the Rocket science of PF. You can't sue me if I have made a mistake.

Lets Start,

So you are working and your Company has a Provision for Provident Fund and all you know is 12% of your Basic Salary or Basic+DA will be deducted and will go somewhere you don't know. Here is a humble try to explain the heck of the process.

Provident Fund(PF) is made of 2 components

(Yes this is the 12% which goes from your Salary.)

(This is usually included in CTC but sometimes this also is deducted from your salary if your employer has not defined employers contribution to PF in CTC)

Lets see both the contributions in Detail.

Contribution to PF by Employer = 3.67%

Contribution to Pension Scheme by Employer = 8.33%

But there is a Catch, Pension Scheme contribution maximum amount is 541 Rs, So if your basic is above 6500 Rs then the 8.33% formula goes for a spin (Because government contributes 1.16% of your Basic Salary to your Pension Fund and have set the cap at 6500 Rs for salary) so the math becomes

Contribution to Pension Scheme by Employer = 541

Contribution to PF by Employer = Employer Contribution - 541

Eg 1:

If your Basic Salary is 5000 then then ER contribution is 600

Contribution to PF by Employer = 183.5

Contribution to Pension Scheme by Employer = 416.5

Eg 2:

So if your Basic Salary is 10000 Rs, then ER contribution is 1200

Contribution to PF by Employer = 659

Contribution to Pension Scheme by Employer = 541

#1 You can always Limit your contribution to 780 Rs which is 12% of the 6500.

#2 You can always increase Your Contribution using VPF i.e more than 12% and but your Employer will still contribute 12%.

So you have some more questions in mind now, Like

1. How the hell I check how much money I have in my PF

2. What the hell is Pension Scheme?

3. Why should I Invest in Provident fund, there are million other options available.

I will explain them in next posts.

Warning..!! - These calculations are just try to summarize the Rocket science of PF. You can't sue me if I have made a mistake.

Lets Start,

So you are working and your Company has a Provision for Provident Fund and all you know is 12% of your Basic Salary or Basic+DA will be deducted and will go somewhere you don't know. Here is a humble try to explain the heck of the process.

Provident Fund(PF) is made of 2 components

**1. Employee Contribution (EE)**or Your Contribution(Yes this is the 12% which goes from your Salary.)

**2. Employer Contribution (ER)**(This is usually included in CTC but sometimes this also is deducted from your salary if your employer has not defined employers contribution to PF in CTC)

Lets see both the contributions in Detail.

**1. Employee Contribution:**It's is easy to explain, It's 12% of your Basic Salary. So if your Basic Salary is 10000 Rs per month then 1200 Rs will go towards PF for EE contribution. or if your salary is 6500 then 780 Rs will go towards PF.**2. Employer Contribution:**This contribution is a little tricky. There is a scheme called Pension Scheme where Employer has to contribute 8.33% of the contribution, So the simple math says as below.Contribution to PF by Employer = 3.67%

Contribution to Pension Scheme by Employer = 8.33%

But there is a Catch, Pension Scheme contribution maximum amount is 541 Rs, So if your basic is above 6500 Rs then the 8.33% formula goes for a spin (Because government contributes 1.16% of your Basic Salary to your Pension Fund and have set the cap at 6500 Rs for salary) so the math becomes

Contribution to Pension Scheme by Employer = 541

Contribution to PF by Employer = Employer Contribution - 541

Eg 1:

If your Basic Salary is 5000 then then ER contribution is 600

Contribution to PF by Employer = 183.5

Contribution to Pension Scheme by Employer = 416.5

Eg 2:

So if your Basic Salary is 10000 Rs, then ER contribution is 1200

Contribution to PF by Employer = 659

Contribution to Pension Scheme by Employer = 541

#1 You can always Limit your contribution to 780 Rs which is 12% of the 6500.

#2 You can always increase Your Contribution using VPF i.e more than 12% and but your Employer will still contribute 12%.

So you have some more questions in mind now, Like

1. How the hell I check how much money I have in my PF

2. What the hell is Pension Scheme?

3. Why should I Invest in Provident fund, there are million other options available.

I will explain them in next posts.

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