How much Provident Fund is deducted from the Salary in Nepal?

What is the Provident Fund in Nepal?

The Provident Fund (PF) in Nepal is a type of savings scheme for employees. Every month, a part of your salary is saved in this fund. Your employer also contributes the same amount. Think of it as a savings plan that grows over time, helping you have money ready when you retire.

PF is not just about saving. It also earns interest, so the money you and your employer put in grows every year. This makes it easier to plan for the future, even if you are not great at saving on your own. Many people also consider PF along with their salary tax in Nepal, as contributions can reduce taxable income.

Importance of Provident Fund for Employees

PF is very important for employees because:

• It helps you save money automatically every month.
• The contributions grow with interest, giving you more money over time.
• It provides a financial safety net after retirement.
• Some PF contributions are tax-free, which reduces your overall tax burden.
• It encourages long-term planning, so you are less stressed about money when you stop working.

Even if you earn around the average salary in Nepal, regular PF contributions help your savings grow steadily and build a secure retirement fund.

Difference Between Retirement Fund, Pension, and Provident Fund

• Provident Fund: Both you and your employer contribute each month. The money is yours and grows with interest until you retire.
   
• Pension Fund: Usually for government employees. You get a fixed monthly amount after retirement instead of a lump sum.
   
• Retirement Fund: A general term for any savings or investment made for use after retirement, including PF and pension.

In simple words, PF is your personal retirement savings, pension is a regular monthly income after retirement, and retirement fund is a bigger category that can include both. A good salary in Nepal can make PF even more beneficial, as higher contributions lead to greater retirement savings.

Provident Fund Calculation in Nepal – Step by Step

Understanding how your Provident Fund (PF) is calculated might seem confusing at first. But don’t worry. Once you see it step by step, it’s very easy. PF is a way to save money from your salary, and both you and your employer contribute to it every month. 

1. Employee vs. Employer Contribution

In Nepal, most employees contribute 10% of their basic salary to the PF. At the same time, the employer also adds 10% of your basic salary. That means if your basic salary is 10,000 NPR, here’s how it works:

• Employee contribution: 10% of 10,000 = 1000 NPR
• Employer contribution: 10% of 10,000 = 1000 NPR
• Total PF deposited: 1000 + 1000 = 2000 NPR

This shows that your PF grows faster because your employer is also helping you save.

2. Percentage of Salary Deducted

The deduction is usually 10% of the basic salary, not the total salary. So allowances like transport, food, or bonuses are not included. It’s important to know that PF is based on your basic salary only.

3. CPS for Government and Public Sector Employees

For government and public sector employees, PF works differently. They follow the Contributory Pension Scheme (CPS):

• Employee contribution: 6% of monthly salary
• Employer contribution: 6% of monthly salary
• Total contribution: 12% of monthly salary

CPS contributions grow over time, but instead of a lump sum, you receive a regular monthly pension after retirement.

4. How Interest is Added

PF money earns interest every year. The interest rate is set by the government and is added to your total PF balance. This means your money grows over time even if you don’t add extra. The longer you keep it, the more it grows, like a small garden slowly turning into a big tree.

5. Examples of Monthly PF Calculation

Let’s see some simple examples for different salaries:

• Basic Salary 20,000 NPR: Employee = 2,000 NPR, Employer = 2,000 NPR, Total PF = 4,000 NPR
• Basic Salary 35,000 NPR: Employee = 3,500 NPR, Employer = 3,500 NPR, Total PF = 7,000 NPR
• Basic Salary 50,000 NPR: Employee = 5,000 NPR, Employer = 5,000 NPR, Total PF = 10,000 NPR

This shows that PF grows bigger as your salary grows.

6. Annual PF Growth

At the end of the year, the total PF (employee + employer contributions) earns interest. Suppose your total PF is 72,000 NPR in a year, and the interest rate is 8%, you will get 5,760 NPR as interest. That makes your total PF 77,760 NPR for the year.

Who is Eligible for the Provident Fund in Nepal? 

Full-time employees in registered companies are eligible to join PF, while part-time, contract, and freelance workers may join voluntarily. The Provident Fund (PF) is designed to help employees save for their future. But not everyone automatically joins it. Knowing who is eligible helps you understand if you should expect PF deductions from your salary.

Eligibility Criteria for Employees

• Most full-time employees in private companies are eligible.
• Your basic salary must be above the government-set minimum threshold.
• PF is generally for employees with permanent contracts, though there are exceptions.
• The scheme applies to companies registered with the Employees Provident Fund (EPF) authority.

Special Cases

Not all workers fall under standard rules. Here’s how PF applies to different types:

• Contract workers: Usually, PF is not mandatory unless the employer voluntarily includes it.
• Part-time staff: PF may or may not apply, depending on hours worked and company policy.
• Freelancers and consultants: PF contributions are generally voluntary. They can join only if the employer agrees or if they opt into a personal retirement savings scheme.

Mandatory vs. Voluntary Contributions

• Mandatory PF: Full-time employees in registered companies must contribute, and employers are required to deposit their share.
   
• Voluntary PF: Some employers allow contract or part-time workers to contribute voluntarily. This helps these workers enjoy the same benefits, including interest growth and tax deductions.

In simple words, if you’re a full-time employee in a registered company, PF is usually mandatory. If you’re a part-time worker, freelancer, or on a contract, PF might be optional. Knowing this helps you plan your savings and ensures you’re not missing out on retirement benefits.

How Can Employers Handle Provident Fund Contributions?

Employers must deduct PF from salaries, deposit both employee and employer shares on time, and follow EPF reporting rules. For PF to work smoothly, employers have clear responsibilities. Handling it properly ensures employees get their savings and the company stays compliant with the law.

Employer Responsibilities for PF Deductions

• Employers must deduct the correct PF amount from employees’ basic salaries every month.
• They must contribute to the PF fund.
• Ensuring timely deductions and deposits is crucial; late payments can lead to penalties.

How Employers Calculate and Deposit PF

• PF is usually 10% of the employee’s basic salary for private-sector workers.
• Employers add an equal 10% contribution to this amount.
• For government and public sector employees under CPS, the employer contributes 6% of salary, while the employee contributes 6%.
• Employers deposit the total amount (employee + employer share) into the Employees Provident Fund (EPF) account.
• Deposits are typically made monthly through authorized EPF payment channels.

Reporting and Compliance Rules

• Employers must maintain records of each employee’s contributions.
• EPF requires monthly reporting with details of contributions, employee data, and payments made.
• Proper compliance ensures employees get the correct interest and benefits, and the company avoids fines or legal issues.
• Any mistakes in deductions, late deposits, or missing reports can be corrected, but consistent accuracy is important.

In short, employers play a critical role in PF management. Accurate deduction, timely deposit, and proper reporting ensure employees’ retirement savings grow safely and legally.

How to Track and Manage Your Provident Fund Contributions?

To track and manage your provident fund contributions, check your PF balance often, follow simple tips to grow it, and avoid common mistakes to secure your retirement. It is important to make sure your retirement savings grow steadily. You can check your balance easily through the official government EPF portal at https://epf.org.np, where you can log in using your credentials. If your company doesn’t provide online access, your HR department can also give you updated statements. Regularly checking ensures that both your contributions and your employer’s share are deposited correctly.

To make the most of your PF, it’s best to start early. Even small contributions grow significantly over time because of interest. Understanding your salary structure is also important, since only the basic salary counts toward PF. Avoid withdrawing money unnecessarily, as it reduces your total savings and interest earned. Tracking interest each year helps you ensure your savings are growing as expected.

Tips to optimize your PF:

• Start early and contribute consistently.
• Check your balance regularly via the EPF government portal.
• Avoid early withdrawals unless absolutely necessary.
• Make sure your employer deposits their share on time.

Many employees make simple mistakes, like assuming the employer handles everything or confusing allowances with the basic salary. By staying aware, monitoring your account, and planning contributions wisely, your PF can grow steadily and provide financial security when you retire.

In short, managing your PF is simple: check your balance, follow these tips, and avoid common errors. These small steps make a big difference in securing your financial future.