PF and Gratuity Explained for Freshers in India

Last updated: 8 October 2026 · By the Asuraa Team

Quick answer: PF is a monthly retirement saving: according to EPFO, you contribute 12% of basic pay plus DA and your employer adds 12%, of which 8.33% goes to the pension scheme. Gratuity is a lump sum your employer pays when you leave, normally only after five years of continuous service. Since November 2025, fixed-term employees qualify for gratuity after one year, according to the government.

Key takeaways

• According to EPFO, the employee contributes 12% of basic wages, DA and retaining allowance to EPF, and the employer contributes another 12%.
• Of the employer's 12%, 8.33% goes to the Employees' Pension Scheme and 3.67% goes to the employee's EPF account.
• EPF membership is compulsory for employees whose basic pay plus DA is up to Rs 15,000 a month, and statutory contributions are calculated on that ceiling.
• Under the Payment of Gratuity Act, permanent employees generally qualify for gratuity after five years of continuous service.
• The labour codes that took effect on 21 November 2025 make fixed-term employees eligible for gratuity after one year of continuous service.

Provident Fund (PF) and gratuity are the two long-term benefits most Indian employers include in your CTC, but they work very differently. PF is money set aside every month from your salary and your employer's contribution. Gratuity is a lump sum your employer pays when you leave, but usually only after several years of service. Knowing how each works helps you read your offer letter and payslip correctly.

This is general information, not legal or financial advice. Rules are being updated under India's new labour codes, so confirm details with EPFO and your HR team.

What is EPF and who has to contribute?

EPF (Employees' Provident Fund) is a retirement savings scheme run by the Employees' Provident Fund Organisation (EPFO), funded by monthly contributions from both you and your employer. According to EPFO, the EPF Act covers factories in listed industries and other notified establishments that employ 20 or more people. Most IT companies, banks and large employers that hire freshers fall within this.

Membership is compulsory for employees whose basic wages plus dearness allowance (DA) are up to Rs 15,000 a month, per the EPFO FAQs. Employees earning more can still join; the same FAQs say they can opt in within six months of joining under the EPF Scheme. In practice, most companies enrol freshers on their first day, so expect PF to appear on your first payslip.

How much goes into PF each month?

You contribute 12% of your basic wages, DA and retaining allowance, and your employer contributes another 12%, according to EPFO. The employer's share is split, so not all of it goes into your PF account.

Source: EPFO FAQs.

Two practical points from the same FAQs:

• The Rs 15,000 cap. Statutory contributions are calculated on a wage ceiling of Rs 15,000 a month. Many employers contribute on that capped amount, which works out to Rs 1,800 each from you and your employer. Others contribute 12% on your full basic pay. Your offer letter or HR policy tells you which.
• New joiners above the ceiling and EPS. Since 1 September 2014, new members earning above Rs 15,000 cannot join the pension scheme, and the full contribution goes to PF instead, per EPFO.

Worked example (assumptions stated)

Assume your basic pay is Rs 25,000 a month and your employer contributes 12% on full basic:

1. Your share: 12% of Rs 25,000 = Rs 3,000, deducted from your salary.
2. Employer share: Rs 3,000, shown in CTC but not in your take-home.
3. If your employer limits contributions to the Rs 15,000 ceiling instead, each share becomes Rs 1,800.

Our guide to CTC vs in-hand salary shows how this affects take-home pay.

What is a UAN and how do you activate it?

Your UAN (Universal Account Number) is a 12-digit number that stays the same for your whole working life, even when you change jobs, according to EPFO. Each employer creates a new member ID for you, and the UAN links them together.

To activate and use it:

1. Get your UAN from HR or your payslip in the first month.
2. Activate it on the EPFO Member Portal using the "Activate UAN" link, with an active mobile number.
3. Complete KYC by linking Aadhaar, PAN and your bank account through the portal.
4. Download your passbook each quarter to check that employer deposits are actually arriving.
5. Transfer, do not withdraw, when you switch jobs. EPFO says that if your UAN is KYC-compliant, transfer can happen automatically when your new employer's first contribution arrives.

EPFO also warns that it never asks members for Aadhaar, PAN or bank details over the phone, or for money deposits (EPFO Member Portal). Treat any such call as a scam; our guide to identity theft in job applications explains how these frauds work.

Can you withdraw PF when you leave a job?

Yes, you can claim final settlement two months after leaving employment, but transferring the balance is usually the better choice. EPFO's FAQs list these rules:

• Final settlement is available on retirement, or two months after you leave a job.
• Partial advances are allowed for reasons such as illness, marriage, education and housing.
• Tax is deducted at source on withdrawals when service is under five years and the balance exceeds Rs 50,000; the rate is 10% with PAN.

Withdrawing early breaks your continuous service and can create a tax deduction. Transferring keeps your service history intact.

What is gratuity?

Gratuity is a lump sum paid by your employer when you leave, as a reward for long service. Under the Payment of Gratuity Act, 1972, employees become entitled to it after five years of continuous service, and the Act covers establishments with 10 or more employees, according to PRS Legislative Research. The five-year condition does not apply when employment ends because of death or disablement (ClearTax).

The common formula for employees covered by the Act is:

Gratuity = (last drawn basic + DA) x 15 x completed years of service / 26

Service beyond six months in the final year is generally rounded up to a full year (ClearTax). For example, with a last drawn basic of Rs 40,000 and 6 years of service, gratuity would be Rs 40,000 x 15 x 6 / 26 = Rs 1,38,462 (rounded).

Do the new labour codes change gratuity for freshers?

They change it mainly for fixed-term employees. The government brought the four labour codes into effect on 21 November 2025, and its Press Information Bureau release says fixed-term employees become eligible for gratuity after one year of continuous service, instead of five.

For permanent employees, the Code on Social Security keeps gratuity tied to five years of continuous service, as summarised by PRS Legislative Research. The same PIB release notes that existing labour Acts and rules continue during the transition while rules under the codes are finalised. If you join on a fixed-term contract, check what your HR policy now says about gratuity.

What do most guides on PF and gratuity for freshers get wrong?

Most guides treat PF and gratuity as guaranteed parts of your CTC, but only PF reaches you on a predictable schedule. Gratuity in a CTC is a provision your employer sets aside. If you are a permanent employee and leave before five years, you usually receive none of it.

This matters for freshers comparing offers. Two offers with the same CTC can differ in real value if one includes a large gratuity line and the other pays more as fixed salary. Our guide on what to check in an offer letter shows how to spot this.

A second common error is assuming the employer's entire 12% goes into your PF account. As the table above shows, 8.33% goes to the pension scheme when you are an EPS member, so your PF balance grows more slowly than "24% of basic" suggests.

How do PF and gratuity show up on your payslip?

Your own PF contribution appears as a deduction; the employer's PF and gratuity usually do not appear on the monthly payslip at all. They are part of CTC but not part of the money credited to you.

Look for:

• PF / EPF (employee) under deductions, usually 12% of basic or Rs 1,800 if capped
• Employer PF in the annual CTC breakup in your offer letter
• Gratuity in the CTC breakup, often as an annual figure

Our walkthrough on how to read a salary slip explains every line.

FAQ

How much PF is deducted from a fresher's salary?

EPFO sets the employee contribution at 12% of basic wages, dearness allowance and retaining allowance. If your employer calculates PF on the Rs 15,000 statutory ceiling, the deduction is Rs 1,800 a month. If it calculates on full basic pay, a basic of Rs 25,000 means a Rs 3,000 deduction. Your employer contributes a matching amount on top.

Does the employer's full 12% PF go into my account?

No. According to EPFO, 8.33% of the employer's 12% goes to the Employees' Pension Scheme and only 3.67% goes into your EPF account, if you are an EPS member. EPFO also says that new members earning above Rs 15,000 since September 2014 cannot join EPS, so for them the whole contribution goes to PF.

Will I get gratuity if I leave before five years?

Usually not, if you are a permanent employee. The Payment of Gratuity Act requires five years of continuous service, except when employment ends due to death or disablement. Fixed-term employees are treated differently: the government says that since 21 November 2025 they qualify after one year of continuous service under the new labour codes.

What is UAN and why should I activate it?

UAN is a 12-digit Universal Account Number that EPFO assigns to you for life. It links the PF accounts created by each employer you join. Activating it on the EPFO Member Portal lets you download your passbook, update KYC and transfer your balance online, and confirm that your employer is actually depositing contributions.

How is gratuity calculated?

For employees covered by the Payment of Gratuity Act, the common formula is last drawn basic plus DA, multiplied by 15 and by completed years of service, then divided by 26. Service of more than six months in the final year usually counts as a full year. For a Rs 40,000 basic and six years, gratuity is about Rs 1,38,462.

Should I withdraw PF when I change jobs?

Generally, transfer it instead. EPFO allows final settlement two months after leaving a job, but withdrawing breaks your continuous service and may attract tax deducted at source if your service is under five years and the balance is above Rs 50,000. With a KYC-compliant UAN, transfer can happen automatically when your new employer's first contribution arrives.

Final thoughts

PF starts working for you from your first month, while gratuity rewards staying put for years, so judge offers mainly on fixed pay and PF rather than on gratuity lines. Activate your UAN in week one and keep your passbook checked. If you are weighing two offers and want a second opinion on the structure, a 1:1 session with an Asuraa mentor can help.