Glossary
What is provident fund?
What provident fund is, how the employee and employer shares are worked out from Basic, and what the ₹15,000 wage ceiling means.
Updated
In short
Provident fund is a retirement saving run by the EPFO, funded by monthly contributions from employee and employer. SimpleERP seeds PF at 12% of Basic for both, as editable payroll components.
Provident fund is a retirement savings scheme run by the Employees' Provident Fund Organisation, funded by monthly contributions from employee and employer. The commonly cited employee contribution is 12% of basic pay and dearness allowance, matched by the employer, part of which goes to the pension scheme. Coverage is mandatory up to a ₹15,000 monthly wage ceiling, as notified. Employers deduct the employee's share and deposit both every month.
Provident fund (PF): a worked example
Two employees at Lakshmi Steel Furnitures in September 2026, with PF at 12% of Basic. Rates and ceilings are as notified; check the current rules.
| Employee | Basic | Employee PF (deducted) | Employer PF (on top) | Total to EPFO |
|---|---|---|---|---|
| Karthik R, store keeper | ₹18,000 | ₹2,160 | ₹2,160 | ₹4,320 |
| Muthu K, welder | ₹13,000 | ₹1,560 | ₹1,560 | ₹3,120 |
Of the employer's share, the pension scheme takes 8.33% of wages up to the ceiling, ₹1,250 for Karthik, and the rest, ₹910, goes to his PF account. That split is made in the EPFO return, not on the payslip.
FAQ
Questions, answered
Is PF calculated on Basic or on gross salary?
Provident fund is commonly calculated on Basic plus dearness allowance, not on gross. Under the Code on Social Security 2020, as notified, allowances above half of total pay count as wages too, so agree the split of Basic and allowances with your CA and check the current rules.
Is PF mandatory for every employee?
Coverage depends on the business's headcount and the employee's wages. Employees earning up to the ₹15,000 wage ceiling, as notified, in a covered establishment must be enrolled; those above it may join voluntarily. Check the current rules with your CA.
Can I cap PF at ₹1,800 a month in SimpleERP?
PF can be capped at ₹1,800 a month in SimpleERP. PF is seeded as 12% of Basic, and you can change the line in any employee's salary structure to a fixed amount such as ₹1,800 for both the employee and employer shares. A new structure takes effect from the date you choose.
Does SimpleERP file PF returns?
SimpleERP does not file PF returns. It deducts PF on the payslip, posts both shares to Statutory Deductions Payable on approval and totals them in the component summary report. Preparing the ECR and paying the EPFO are done on the EPFO portal.
Related
Keep reading
Statutory deductions
Deductions from salary required by law, such as PF, ESI, professional tax and TDS, held as liabilities until paid.
Read moreCTC (cost to company)
Cost to company: gross pay plus the employer's contributions, usually quoted per year in an offer letter.
Read moreSalary structure in India
Basic, HRA, allowances, PF, professional tax and TDS explained as concepts, with a worked payslip and a loss-of-pay example.
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