'''Why Provident Fund ? '''
Considering the fact that all employees, part timers and even the people hired by the contractors should have some money to their credit to keep things going smoothly even in the rainy days, the Indian government decided upon the statute that it would be absolutely mandatory for all the employees to have a mandatory deduction from their salary. The rate of deduction might vary from organization to organization.
The salary structures between the companies are not uniform in nature. Thus the amounts of deductions are also not similar and uniform across all the companies. There are organizations that would pay their employees salary components like the Dearness allowance (DA) and retaining allowance along with the basic salary. Thus in this case there would be a deduction of 10% in case the salary of the employee comprises of basic, DA and retaining allowance.
'''Rates of Provident fund deduction from salary'''
But in case there is no Dearness allowance (DA) and retaining allowance along with the basic salary of the employee. Then in this case there would be only a 12% deduction on the basic salary of the person. There would be an equal contribution from the employee at the rate of 10% or 12% as the case may be and would be deposited to the Provident fund account.
'''These deposits would also attract a interest rate of 8.5% per annum (the percentage may vary from year to year)'''. There are tax benefits that are allowed by the Indian government on the deductions from the employee’s salary.
The employee may choose to have a higher contribution than the mandatory rate of 10% or 12% as the case may, up to a maximum of 100% of the basic salary drawn by the person. But under such a situation the liability of the employer would not be enhanced. It would still stay at the mandatory rate of 10% or 12% as the case may be.