Provident Fund in Pakistan: Your Guide to Secure Savings

Provident Fund in Pakistan: How to make your hard earned money secure for your future?

Muhammad Muddasir August 15, 2025August 15, 20253 months ago

An important part of every employee’s life in Pakistan is financial support at the time of retirement or sudden need. The basis of this support is Provident Fund (PF). This is not just a monthly deduction from salary, but the basis of your future. Come, let us know in detail what is Provident Fund, how does it work, and its benefits which every employee should know.

Table of Contents

Provident Fund Basics Details and Working Method

Provident Fund is a long-term saving scheme in which you (employee) and your employer together deposit a specific amount every month. This amount is deposited in a separate trust account and further invested in various financial instruments, which earns profit. This profit also keeps getting deposited in your account, which helps your savings grow rapidly with time.

When you leave your job, retire, or meet any other condition mentioned in the PF rules, your accumulated savings amount along with any profit earned on it is given to you in a lump sum amount. In Pakistan, Provident Funds are registered and regulated under the Provident Funds Act, 1925, which ensures that your hard-earned money remains safe.

Types of Provident Fund in Pakistan

There are three types of Provident Fund in Pakistan:

Statutory Provident Funds: These funds are for government departments, semi-government organizations, and local authorities. The money deposited in them and the profit earned on them are completely free from income tax.

Recognized Provident Funds (RPF): These are created by private sector companies and organizations. These funds have to get recognition from the FBR (Federal Board of Revenue). Tax exemption is available on the money deposited in them only after recognition. For this, it is necessary to follow some documents and answers.

Unrecognized Provident Funds: When a private company does not get its fund recognised by the tax authorities, it is called an unrecognized fund. There is no tax exemption on this on an annual basis.

Rules of Provident Fund in Pakistan

There are three basic rules of PF in Pakistan, which are important to know:

Statutory Provident Funds:

These funds are for the employees of government and semi-government organisations. Contributions made in these funds and the profit earned on them are completely free from income tax.

Recognised Provident Funds (RPF):

These are mostly created by private sector companies and organisations. These funds need to be recognised by the Federal Board of Revenue (FBR) so that they can get tax exemption. After getting recognition, contributions of both the employee and the employer and the profit earned on them are not taxed.

Unrecognized Provident Funds

If a private company does not get its fund recognised by the FBR, it is called an unrecognized fund. There is no annual tax exemption in this type of fund.

Provident Fund is calculated on a fixed portion (usually 8.33% or 10%) of your basic salary. Every month you and your employer contribute an equal share (or sometimes more) to the fund. For example, if your basic salary is Rs. 50,000 and the contribution rate is 10%, then both you and your employer will deposit Rs. 5,000 every month. You also earn profit on this amount throughout the year, which significantly increases your total savings.

Contributions and Eligibility

Generally, every permanent and confirmed employee is eligible to be a part of this scheme. In most companies, this scheme is compulsory. The method of contributions is that a specific part of your basic salary is deposited in PF every month. Your employer also deposits the same or more amount for you. This percentage can generally be from 8.33% to 10%. If you contribute 10%, your employer will also contribute 10%, which will increase your savings rapidly.

Some companies also offer Voluntary Provident Fund (VPF), where employees can deposit additional money at their own will apart from mandatory contribution so that their savings and tax benefits increase.

Benefits of Provident Fund that can make your life easier

There are many such benefits of Provident Fund that can improve your financial condition:

Financial Security: This fund is the guarantee of financial security of your needs. The lump sum you get on retirement can make your old age peaceful.

Tax Benefits: Investments made in Recognized Funds and the returns received on them are tax-free under the Income Tax Ordinance, 2001. This is a great benefit which increases your savings.
Forced Savings: This scheme is a kind of “forced savings”. Your savings are automatically deducted every month, you do not have to work hard separately.
Support in tough times: As per the PF rules of many companies, you can take a loan or make a temporary withdrawal from the fund within certain time frames. For example, for home time, children’s time, or medical emergency.
Employee Retention: For employers, this scheme is an important way to retain employees in the company and ensure their loyalty.

Fund Management and Rules

A trust is formed to run the Provident Fund, which needs to be registered. Trustees are appointed to run this trust. This trust works under the Trust Deed and rules. These documents include PF policies, contribution rates, method of investment, and withdrawal criteria.

PF money is usually invested in safe and profit-saving places, such as government securities, bank deposits, and National Savings schemes. Every provident fund trust has to submit an annual tax return to FBR every year, so that its tax-exempt status is maintained.

Upcoming changes and future trends

The Pakistani government and Regulators such as the Securities and Exchange Commission of Pakistan (SECP) are introducing new rules to improve Provident Funds. The aim of these new rules is to increase transparency of the funds and make investments by employees more secure.

The Contributory Pension Fund Scheme for government employees has also been revised recently. This scheme is different from the old pension system and its aim is to reduce future liabilities and provide a better and sustainable retirement plan for employees.

A Provident Fund is not just a saving scheme, but an important part of your future financial planning. Its correct use can make your life valuable, strong and independent. Understand your company’s PF rules properly and take full advantage of this opportunity.

FAQs:

How to register Provident Fund in Pakistan?

To register Provident Fund, the company has to form a Trust, which is formed as per the proper Trust Deed and PF Rules. This Trust is registered with the FBR to get tax exemption.

What is the process of Registration of Provident Fund in Pakistan?

The registration process of Provident Fund includes formation of Trust, draft of Trust Deed, getting approval from FBR, and informing SECP or relevant authorities.

How is Provident Fund calculated in Pakistan?

The calculation of Provident Fund is a fixed percentage of your basic salary – generally 8.33% to 10%. The employer also contributes the same or more. Apart from this, annual profit is also added which increases savings.

What are the rules for contribution to Provident Fund in Pakistan?

Every permanent employee is included in PF. Both employer and employee contribute on monthly basis. Some companies also offer Voluntary Provident Fund (VPF) in which employee can deposit more money as per his wish.

What is the difference between Gratuity and Provident Fund in Pakistan?

Provident Fund is a mutual contribution plan while Gratuity is received only from employer. PF contribution is made every month, while Gratuity is received as lump sum after long-term service.