Provident Fund in India: Rates, Thresholds and Employer Cost

The employer and the employee each 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 budget.

What changed in 2026

Three things. On 1 July 2026 new provident fund, pension and insurance schemes made under the Code on Social Security replaced the schemes that had run since 1952, 1995 and 1976. The contribution is now worked out on wages as the Code defines them. And on 17 September 2026 the wage ceiling rose from ₹15,000 to ₹25,000 a month, the first increase since 2014.

The rates stayed the same: twelve per cent from each side. The money is still due by the 15th of the following month.

It is charged on wages, which in practice means basic pay

Wages means basic pay, dearness allowance and retaining allowance. Allowances such as house rent and conveyance can make up at most half of total pay; anything above half is added back into wages, and provident fund is charged on it too. A salary with basic at half of the total or more pays provident fund on basic.

That makes salary structure a cost decision, not an administrative one. Two packages with the same total can carry different provident fund costs depending on how much is basic pay. Settle it before the offer goes out, because it is hard to change later without the person reading the change as a cut.

The wage ceiling is now ₹25,000

The part an employer must pay is capped. From 17 September 2026 the ceiling is ₹25,000 a month, so the most an employer is required to contribute is twelve per cent of ₹25,000, which is ₹3,000 a month, however much the person earns. Of that, 8.33 per cent of wages up to the ceiling, at most ₹2,083 a month, goes to the pension scheme and the rest to the person’s provident fund account.

Many employers contribute on the full basic salary instead. That is allowed and common, and it is agreed between the employer and the employee. On a basic of ₹5,00,000 a year it comes to about ₹5,000 a month rather than ₹3,000, around ₹24,000 a year more for one person.

Choose deliberately, and choose before the offer. A person who has had contributions on full basic will read a later move to the ceiling as a pay cut.

Who has to join

Everyone whose wages are ₹25,000 a month or less joins from their first day. A new hire paid more than that who has never been a member does not have to join, though they can with the employer’s agreement. Anyone who already has a provident fund account stays a member when they change jobs, whatever they earn.