Provident Fund in Pakistan: Fundamentals, Regulations, and More

The Provident Fund in Pakistan is a basic but important financial tool that acts as a safety net for most employees. It facilitates employees in saving for their future and ensures that they get financial security after their retirement. 

Offering provident funds can make your company more attractive to potential employees and help in retaining your current employees, as it demonstrates your commitment to their long-term financial well-being.

What is a Provident Fund?

A Provident Fund is a contribution-based retirement savings scheme for employees, where a portion of their salary is regularly contributed to the fund. This money is invested and increases with time. At retirement, employees receive their contributions, plus the interest earned, as a lump sum or in installments.

The company needs to establish its Provident Fund in the form of Trust has to be registered with the concerned sub-registrar for the region. This is needed to get the provident fund registered as an independent statutory body. The provident fund is established in the following three forms.

  • Statutory Provident Funds;
  • Recognized Provident Funds;
  • Unrecognized Provident Funds;


Types of Provident Funds:

a. Employer-Managed Provident Fund: Employers manage these funds for their employees, who make regular contributions, which are usually mandatory. Under this category, we have the: 

  • Statutory Provident Fund: this is set under the Provident Fund Act, of 1925. Such funds are maintained by the Government, semi-government, local authorities, and other many business institutions. This form is exempted from Income Tax and payments from such funds do not need recognition from the Commissioner of Inland Revenue.
  • The recognized Provident Fund is recognized by the Commissioner of Inland Revenue under the Sixth Schedule of Income Tax Ordinance, 2001. This type of Provident Fund is maintained by private sector organizations. Payments from such Provident funds are also exempted from Income Tax.
  • Unrecognized Provident Fund: This form of the provident fund has no exemptions from tax. The tax is charged on the employer’s contributions and interest thereon only once at the time of payments made to the employee.

b. Voluntary Provident Fund (VPF): A VPF allows employees to contribute more than the mandatory requirement, which can boost their savings. This is a comparatively recently launched option, which allows people to invest in various VPF options offered by asset management companies in Pakistan 

These VPF funds are regulated by SECP as per the Voluntary Pension System Rules, 2005. They offer personalized and customized savings. These are an investment vehicle designed to meet the specific needs of each employee 

Mandatory Contributions:

In Pakistan, the Employees’ Provident Fund (EPF) Act makes it mandatory for employees and employers to contribute a portion of the employee’s salary. As of September 2021, the contributions were as follows:

Employees: 8.33 % of their basic salary.

Employers: 8.33 % of the employee’s basic salary.

Voluntary Contributions:

Employees can contribute additional funds (above the mandatory 8.33 % contribution) voluntarily to increase their savings and avail of tax benefits.

Regulations and Tax Benefits:

a. Tax Benefits: Contributions to the Provident Fund can be eligible for tax deductions.

b. Withdrawal Rules: Regulations stipulate that Provident Fund withdrawals can occur upon retirement, resignation, or when the employee reaches the age of 60. Premature withdrawals are allowed for specific needs like medical treatment and house construction.

c. Interest Rates: The interest rate on Provident Fund balances is periodically declared by the government.


It’s essential to nominate a beneficiary who will receive the Provident Fund balance in case of the employee’s demise.

Investment of Funds:

Provident Funds in Pakistan are managed by financial institutions, and the funds are invested in various financial instruments to generate returns.

Online Services:

Many organizations offer online platforms for employees to check their Provident Fund balance, transactions, and other account details.

Beneficiary’s Rights:

Employees have the right to know about their Provident Fund contributions, the interest earned, and how the fund is being managed.

The Provident Fund is a useful financial investment option that offers financial security and savings to employees. Understanding the fundamentals, regulations, and tax benefits associated with the Provident Fund is crucial for individuals who want to make the most of this retirement savings option. Keep yourself informed about the latest changes in regulations to ensure a secure financial future.

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