GUIDESPERSONAL FINANCE
Calculating PF Deduction from Salary: Guidelines and Compliance
3 MIN • 
LAST EDITED BY SABA MALAIKA ON MAY 19, 2025.
LAST EDITED BY SABA MALAIKA ON MAY 19, 2025.
GUIDES LAST EDITED BY SABA MALAIKA ON MAY 19, 2025.
All salaried employees have access to the Employee Provident Fund, sometimes known as PF, which is a retirement savings plan supported by the government and pays set interest. The Employees Provident Fund Organisation (EPFO), a statutory organisation established by the Indian government under the Ministry of Labour and Employment, is responsible for managing the employee provident fund. It was established to manage the required employer and employee contributions to the PF programme.
The calculation of how much PF is deducted is based on basic salary. And both the employer and the employee contribute each month to a unique account under the PF plan. Provident funds have a variety of benefits for both contributing parties.
The employees account for minimum PF deduction of 12% of their basic salary along with the Dearness Allowance monthly to the EPF account.
For instance, if the base monthly income ₹15,000, the worker's contribution is 12% of that amount, or ₹1,800.
Employers must contribute 8.33% of the minimum 12% to the Employee Pension Scheme and the remaining 3.67% to the EPF. 3.67% of ₹15,000 is, therefore ₹550.
Thus, the employee contribution plus the employer contribution, which in this case amounts to ₹2,350/-, will be the total monthly contribution to the EPF account for a person earning ₹15,000.
Currently, there is a ₹15,000 maximum PF deduction cap on the monthly PF account contributions. This implies that if the employee's basic income plus DA exceeds ₹1,25,000, the amount contributed to the PF account will be computed up to ₹15,000.
Provident Fund (PF) is calculated as 12% of your basic salary + dearness allowance (DA), deducted from your monthly salary. Your employer also contributes 12%, but 8.33% (up to ₹1,250) goes to the Employee Pension Scheme (EPS), and the remaining amount goes to your PF. If your basic salary is ₹30,000, your contribution will be ₹3,600. Your employer will also contribute ₹3,600, but ₹1,250 of this goes to EPS, and the remaining ₹2,350 goes to your PF. In total, ₹5,950 (your ₹3,600 + employer's ₹2,350) gets added to your PF account monthly.
EPF interest grows quietly every month but only shows up in your account at the end of the financial year (31 March). The government sets the interest rate, and it's applied to your monthly closing balance, including your contribution and employer's. The formula is simple: (Annual Interest Rate ÷ 12) × Your EPF Balance. For example, if your EPF balance is ₹1,00,000 and the interest rate is 8%, you earn around ₹667 in interest that month. This amount keeps getting added to your balance, so the next month, you earn interest on a slightly larger amount.
One of the most frequently asked questions when it comes to PF deduction from salary calculation is: “Is PF deduction mandatory for all salary levels?” The answer lies in understanding the salary limit for PF deduction, currently set at ₹15,000 per month.
As per EPFO guidelines, Provident Fund (PF) deduction is mandatory if an employee’s Basic + Dearness Allowance (DA) is ₹15,000 or less. This statutory wage ceiling determines whether PF contributions are compulsory or optional.
Here’s a breakdown of how PF deduction rules apply based on salary brackets and employee type:
8.33% of the employer’s share goes to EPS (Employee Pension Scheme), capped at ₹1,250.
The remaining 3.67% goes to EPF (Employee Provident Fund)
This standard setup ensures compliance with the minimum PF deduction rule.
Employees earning more than ₹15,000 (Basic + DA) who are not already EPF members are not mandatorily covered under the scheme. However, they can opt-in voluntarily with the employer’s consent.
This needs mutual agreement and is not automatic.
This scenario brings flexibility, but also requires awareness. Employers and employees should agree on the percentage of PF in salary to be deducted if opting into EPF voluntarily.
If you're already a member of the EPF scheme and your salary later increases beyond ₹15,000, contributions usually continue on full Basic + DA, unless both employee and employer specifically choose to cap it at ₹15,000.
📝 In such cases, the maximum PF deduction could increase in real terms, although the EPS contribution remains capped at ₹1,250 (i.e., 8.33% of ₹15,000).
Employee Provident Fund (EPF) in India comes with many tax benefits for employers and employees.
1. Tax-free savings on your contribution – The money you put into EPF (up to ₹1.5 lakh a year) qualifies for a tax deduction under Section 80C, which means less taxable income and more savings for you.
2. No tax on employer's contribution—Your employer also contributes, and you don't pay tax on their contribution.
3. Interest is tax-free, mostly – EPF earns interest yearly, and if your own + employer's contribution is ₹2.5 lakh or less per year, the interest stays tax-free. If it crosses this limit, the interest on the extra amount gets taxed.
4. Tax-free withdrawal (if you stick around for 5 years) – When withdrawing EPF after 5 years of continuous service, the entire amount—your contributions, your employer's contributions, and all the interest earned is completely tax-free. If you withdraw before 5 years, though, there might be taxes.
The Employees' Provident Fund and Miscellaneous Provisions Act of 1952 must be complied with to calculate the PF (Provident Fund) deduction from salary. Here are some of these guidelines:
Employers must register with the Employees' Provident Fund Organisation (EPFO) to offer PF benefits to their staff members if they have more than 20 employees.
The employee's base salary plus dearness allowance is now subject to a 12% contribution to their pension fund. Employers must make an equal contribution to each employee's PF account.
The employee's basic pay and DA should be used to determine the employee's PF contribution. Other benefits like housing rent, transport costs, medical expenses, etc., shouldn't be taken into account when calculating PF.
EPFO requires the submission of PF reports monthly by employers, which has crucial data, including contributions by employees, contributions made by the employer and other pertinent information.
EPFO deposits should be made within 15 days of each month, following the practice of withholding employees' salaries every month for PF contributions.
EPF Act sanctions can be enforced if regulations aren't followed. Employers could potentially be forced to pay additional costs if PF payments aren't deposited promptly. Consequences for non-compliance include fines and penalties.
Section 80 C of the IT Act permits claimable deductions for employee contributions to the EPF.
To guarantee workers receive their PF payments and employers avoid penalties or fines, it is crucial to adhere to the rules and the requirements of the EPF Act. Staff members should get consistent updates from their employers on their PF contributions and account information
The primary focus of PF is to function as a retirement benefit programme that aids employees in accumulating retirement savings. The interest earned on the PF account contributions might assist employees in amassing a sizeable retirement corpus. When an employee retires or is unable to work owing to a disability or for other reasons, the PF programme offers them financial stability. Employees may use their PF balance to pay for their children's education or in the event of an emergency, such as a medical one.
But having a PF isn’t the only way to save for your retirement or be financially independent. Investing a part of your income is also a viable way to prepare for retirement.
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There are many guidelines and compliances you must keep in mind for calculating the PF deduction from your salary.
Registration and timely payments to the EPFO, sanctions against untimely payments and claimable deductions under the IT Act are some of the most pertinent ones.
The PF account receives 12% of the base salary and dearness allowance from both the employer and the employee. As a result, the total monthly payment to the EPF is 24%.
There are many important rules to consider while making PF deductions from salary.
The employee's base salary plus dearness allowance is subject to a 12% contribution to their pension fund. Employers must make an equal contribution to each employee's PF account. Out of their 12%, employers are obligated to contribute 8.33% to the Employee Pension Scheme and the remaining 3.67% to the EPF.
These deposits should be made within the first 15 days of each month.EPF Act sanctions can be enforced if regulations aren't followed. There can be additional fines if PF payments aren't deposited promptly.
