What is the Shariah ruling about the provident fund received by the government employees? Kindly explain whether interest is included in it?
General Provident fund is a facility provided by the public and private institutions to their employees.
In order to avail this fund, a certain percentage of the employee’s salary is deducted and deposited in this fund every month until his retirement. At the time of retirement, the company pays the deposit to the employee with an additional amount. There are a few forms.
Current forms of provident fund
- Some companies force all their employees to become a part of this fund and do not give them any option of non-participation. Due to which every month before paying their salary the company deducts a certain amount according to a previously fixed rate and the remaining amount of the salary is given to the employee.
- In some companies, there is no compulsion for every employee to be a part of this fund, but they give their employees an option to get benefited and voluntarily becomes a part of this fund and the company with the consent of their employees deduct an amount from their salaries as per the fixed rate every month and deposit it in the said fund.
- Some companies forcibly make every employee a part of this fund but also give an option that if any employee wants to deposit more than the prescribed rate in this fund, he can do so. This type of deduction is called a voluntary/ forced deduction.
Ruling on increments in the following cases
- In the first case (forced deduction) the amount of provident fund is a reward from the company for its employees and it is permissible for the employees to take it. But as a precaution, it is better not to take this additional amount.
- In the second type (optional deduction) the employees can take the same amount of money which is deducted from their salaries. It is not permissible for them to take additional money as it is clearly counted as interest (Riba).
- In the third case (forced and voluntary deduction) The employee can take the additional amount received with the amount deducted by force as it is permissible for him. But he should not take the additional amount received on the amount deducted by the employee at his own discretion because it is not permissible.
NOTE: It should be noted that the above answer is the English translation of the Fatwa issued by Jamia Uloom Islamia Allama Yusuf Banuri Town, Karachi, Pakistan.