How a provident fund grows
A provident fund is retirement savings: a fixed percentage of your basic pay is deducted every month, and your employer usually adds the same amount. The trustees invest the money and credit profit to your account once a year. Because profit itself earns profit the following year, over a long career most of the fund comes from profit, not from contributions.
- Each year’s basic salary = monthly basic × 12, growing by the expected raise every new year.
- Your share and the employer’s share = annual basic × each percentage.
- Profit = rate × (balance at the start of the year + that year’s contributions × 6.5 ÷ 12). A monthly deduction stays in the fund for 6.5 months of the year on average.
- The closing balance becomes the next year’s opening balance.
Example: basic pay Rs 100,000 a month, 10% each, 10% yearly raise, 12.05% profit, 20 years. In year 1 you and the employer each put in Rs 120,000 and profit is Rs 15,665. After 20 years the fund holds Rs 37,480,327: Rs 6,873,000 of your money, Rs 6,873,000 from the employer and Rs 23,734,327 of profit. At 8.33% each the same career gives Rs 31,221,112.
How it is taxed (Sixth Schedule)
| Part | Tax treatment |
|---|---|
| Your contribution | Comes out of taxed salary; no separate relief |
| Employer contribution | Exempt up to 10% of salary or Rs 150,000, whichever is lower; the excess is taxed that year |
| Profit each year | Exempt up to one-third of salary; the excess is taxed that year |
| Lump sum on leaving | Exempt (Second Schedule clause 23) |
“Salary” here means basic pay, plus dearness allowance if your terms include it; other allowances are left out. In the example the employer’s Rs 120,000 in year 1 is within the limit, but from year 4 10% of salary passes Rs 150,000, and any employer contribution above Rs 150,000 is taxable (in year 4 the employer puts in Rs 159,720). Once the balance is large, profit can also pass one-third of salary, as it does in the last years of this example. The law also taxes profit credited above a rate notified by the Federal Government; we could not find that notification, so the calculator does not apply it. The calculator shows the taxable amount; the tax on it depends on your slab.
Government GP Fund
The General Provident Fund of government employees runs under the Provident Funds Act 1925 and is built only from the employee’s monthly subscriptions. The Finance Division fixes its profit rate each year by resolution: 13.97% for 2023-24, 12.46% for 2024-25 and 12.05% for 2025-26. The Railways and Defence ministries issue their own instructions for funds they control. Payments from the GP Fund are fully exempt from income tax.
Withdrawal rules
- The whole balance is payable on the day you stop working for the employer (rule 2(g)). You can also ask in writing to leave it in the fund.
- While you are still employed, money can be paid out only under the conditions in FBR’s rules (rule 2(h)); your fund’s regulations set out any loans or partial withdrawals.
- A transfer to a new employer’s recognised fund stays tax-free (rule 4(2)).
- The employer can take back its own contributions and their profit only on dismissal for misconduct, or if you resign before a period set in the fund’s regulations (rule 2(d)).
This projection assumes the same raise and profit rate every year; real profit changes year to year. Enter the opening balance and rate from your fund’s latest annual statement for a closer estimate.
Frequently asked questions
How much do employees and employers contribute to a provident fund in Pakistan?
No law fixes a rate for private employers; the fund’s rules do. The common choices are 8.33% of basic pay (one month’s basic a year) or 10%, each from the employee and the employer. For the fund to stay recognised by FBR, the employer may not contribute more than the employee in any year.
Is the provident fund taxable?
The amount you receive when you leave is tax-free (Second Schedule clause 23). But each year, the employer’s contribution above 10% of salary or Rs 150,000, whichever is lower, and profit above one-third of salary, count as your taxable salary for that year (Sixth Schedule rule 3). Your own contribution comes from taxed salary.
What profit rate does the GP Fund pay?
The Finance Division fixed 12.05% a year for 2025-26 (Resolution of 3 September 2026), down from 12.46% for 2024-25. The rate is announced after the year ends. Company provident funds set their own rate from what their investments earned.
Can I withdraw my provident fund before leaving the job?
The balance becomes payable on the day you stop working for the employer. Before that, a recognised fund can pay out only in the cases and limits FBR’s rules allow, which many funds use for temporary loans or partial withdrawals. If you move to a new employer with a recognised fund, the balance can be transferred and stays tax-free.
Can my employer keep its share if I resign?
Only if the fund’s regulations say so and you leave before a period they specify, or you are dismissed for misconduct. Even then the employer can take back only its own contributions and the profit on them. Your own contributions and their profit are always yours.
Does this work for a government GP Fund?
Yes. Set the employer share to 0, because the GP Fund is built from your own monthly subscriptions, and use the GP Fund rate. Payments from a fund under the Provident Funds Act 1925, such as the GP Fund, are fully exempt from income tax (Second Schedule clause 22), so the Sixth Schedule limits do not apply.
Guides
- Provident fund in Pakistan: how private PF and GP Fund work, the tax rules and getting your money outHow a recognised provident fund and the government GP Fund work: contributions, the 12.05% GPF rate, the Rs 150,000 tax-free cap and final settlement.
- Your salary slip explained: basic pay, allowances, tax and deductions in PakistanWhat each line on a Pakistani payslip means: basic, house rent, medical and other allowances, what is taxed, and tax, EOBI and PF deductions.
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Sources
- Income Tax Ordinance 2001 amended up to 30 June 2026 (FBR): Sixth Schedule Part I rules 2, 3, 4 and 14; Second Schedule Part I clauses (22) and (23)
- Finance Division Resolution No.F.2(1)Reg.7/2014-2015, 3 Sep 2026: GP Fund profit 12.05% for 2025-26
- Finance Division Resolution, 10 Sep 2025: GP Fund profit 12.46% for 2024-25
- Ministry of Finance letter No.8(1)GS-I/2018, 12 Aug 2026: GP Fund mark-up 2023-24 to 2025-26
- Finance Act 2026 (Gazette, 26 Jun 2026)
This calculator gives an estimate for guidance. It is not official advice. Rates and rules change, so confirm important decisions with the relevant authority or a qualified professional. See how we calculate, or report a mistake.