Provident Fund

Both the employer and the employee contribute twelve per cent. The employee’s share comes out of their pay; the employer’s share is a cost on top of it, and it is the number foreign companies most often leave out of their modelling.

It is charged on basic pay, not on total cost

The contribution is calculated on basic salary, not on total cost to company. This matters more than almost anything else on this page: two packages worth the same total can carry materially different provident fund costs depending on how much of the package is basic pay.

That makes salary structure a cost decision rather than an administrative one. It is settled before the offer goes out, and it is difficult to revisit afterwards without the employee experiencing the change as a cut.

The wage ceiling almost nobody budgets around

Mandatory provident fund is capped. The statutory wage ceiling is ₹15,000 a month, so the contribution an employer is actually obliged to make is twelve per cent of ₹15,000 — ₹1,800 a month — however much the person earns.

Contributing on the full basic salary instead is permitted and extremely common, but it is voluntary and rests on agreement between the employer and the employee. On a basic of ₹5,00,000 a year that is roughly ₹5,000 a month rather than ₹1,800, a difference of about ₹38,000 a year for one person.

Most foreign employers are never told this is a choice at all. It is worth deciding deliberately rather than inheriting whatever a payroll provider configured first — and worth deciding before the offer, because an employee who has been receiving contributions on full basic will read a later reduction as one.