What is Provident Fund (EPF / Sanchaya Kosh)?

The Provident Fund (Nepali: Sanchaya Kosh) is a compulsory long-term retirement-savings scheme for salaried workers in Nepal. Under the standard arrangement the employee contributes 10% of basic salary each month and the employer matches it with an equal 10%, so a combined 20% of basic pay is deposited into the worker's individual provident-fund account every month. The money accumulates over the whole of a person's working life, earns interest, and is paid out as a lump sum (with the accrued interest) when the contributor retires, leaves service or otherwise becomes eligible to claim.

The scheme is administered chiefly by the Employees Provident Fund (EPF), the statutory body universally known in Nepal as the Karmachari Sanchaya Kosh. It runs the provident fund for civil servants, the army, police, teachers, employees of public enterprises and a large number of private-sector workers, and has grown into one of Nepal's largest institutional investors, deploying funds in sectors such as hydropower and infrastructure. The EPF is overseen by the Ministry of Finance and is an approved retirement fund under the Income Tax Act, 2058.

Beyond simple saving, the provident fund doubles as a source of low-cost credit. Once a member has contributed for a qualifying period, the EPF lets them borrow against their own accumulated balance — typically up to around 90% of the balance — through home loans, education loans, contributor (personal) loans and similar products, usually at a rate a little above the rate the fund itself pays on deposits. This makes the PF account both a retirement nest-egg and a lifelong line of credit, which is one reason the scheme is so deeply embedded in Nepali working life.

Suppose an employee has a basic monthly salary of NPR 30,000. The employee's 10% contribution is NPR 3,000, and the employer adds a matching NPR 3,000, so NPR 6,000 goes into the provident-fund account each month — NPR 72,000 over a year, before any interest. The employer normally deducts the employee's share directly from salary and deposits both shares together with the EPF, so the worker never handles the money.

Crucially, the contribution is calculated on basic salary, not on gross pay including allowances, overtime or bonuses, so the actual deposit depends on how the salary is structured. The balance then compounds: the EPF credits interest on the accumulated amount each year, so over a 25-30 year career the fund grows well beyond the sum of the bare contributions. Historically the EPF has paid depositors an annual interest rate in the region of 7-8.5%; it raised the rate on provident-fund and pension balances to 8% per annum with effect from Shrawan 1, 2079 (mid-2022), having previously paid around 7%.

The contributory pension scheme run alongside the provident fund uses a different headline contribution rate from the classic 10% + 10% provident fund, reflecting that it is designed to deliver a recurring pension rather than purely a lump sum. Workers can usually withdraw or transfer their provident-fund balance on retirement, on changing jobs, or in defined hardship situations such as serious medical need or closure of the employing organisation.

Provident-fund saving in Nepal predates the modern institution by several decades. The first scheme, the Sainik Drabya Kosh (Army Provident Fund), was created in 1934 during the Rana period to provide for military personnel. In 1944 a parallel Nijamati (Civil) Provident Fund was introduced for civil servants in the Kathmandu Valley, and its coverage was later extended to civil servants more widely. In 1959 an Employees' Provident Fund Department was set up under the Ministry of Finance to manage these existing funds, and coverage was widened to include the police.

The modern body was created by the Employees Provident Fund Act, 2019 B.S. (1962 A.D.), under which the Karmachari Sanchaya Kosh was formally established as an autonomous statutory organisation; the earlier army, civil and departmental funds were merged into it. From fiscal year 2076/77 B.S. (2019/20) it also began operating a contributory pension scheme alongside the traditional provident fund. The Fund is headquartered in Lalitpur (Pulchowk), within the Kathmandu Valley.

The provident fund's other legal anchor is tax law. As an approved retirement fund under the Income Tax Act, 2058 (2002), contributions enjoy favourable treatment: under the income-tax rules a worker may deduct retirement-fund contributions from assessable income up to one-third of total assessable income or NPR 300,000, whichever is lower. On payout, retirement payments based on contributions are tax-free up to the greater of NPR 500,000 or 50% of the total deposit, with the remaining balance taxed at a concessional rate of 5%.

The provident fund is frequently confused with the Social Security Fund (SSF, Samajik Suraksha Kosh), which is a different and newer scheme established under the Contribution-Based Social Security Act, 2074 (2017). The SSF is a broader social-insurance system covering medical care, accident and disability, maternity, dependant protection and old-age pension, funded by a combined 31% contribution (11% from the employee and 20% from the employer) on basic salary. The classic provident fund, by contrast, is essentially a personal savings-and-loan account and does not by itself cover those social-insurance risks. For private-sector employers who enrol in the SSF, the 31% SSF contribution is intended to replace the older 10% + 10% provident fund and the gratuity obligation that previously applied under labour law.

Other terms that travel with the provident fund include gratuity (upadan) — a separate end-of-service lump sum historically required under the Labour Act — and the Citizen Investment Trust (CIT, Nagarik Lagani Kosh), a parallel state institution that runs voluntary retirement-saving products and approved retirement funds for those not covered by, or saving in addition to, the EPF. The CIT and EPF both qualify as approved retirement funds for tax purposes and periodically adjust their savings and loan interest rates.

Two further distinctions are worth keeping clear. First, 'provident fund' the scheme should be distinguished from the institution that runs it: the EPF / Karmachari Sanchaya Kosh is the manager, while the provident fund is the account and entitlement. Second, the traditional provident fund (a lump-sum vehicle) is distinct from the EPF's own contributory pension scheme (which pays a recurring pension), even though both are run by the same body and both involve matched employer-employee contributions.