Any contribution in the provident fund is made for the welfare of the employee. The contribution is made by both employee and the employer and deduction for the same is available under section 80C. In the provident fund, a part of the salary of the employees is contributed and the other part is contributed by the employer on the behalf of their employees. As per the section 10(11) and 10(12) of the Income Tax Act, the definition of the exemption on the amount added to the provident fund has been mentioned. Also, the amount deducted on contribution to the provident fund comes under the purview of 80C of the Income Tax Act. Provident fund is categorized into four types namely :

Income TaxIncome Tax

Recognized Provident fund – It is recognized by the commissioner of Income Tax under EPF and Miscellaneous Provision Act, 1952. Recognized provident fund is applicable to at least 20 employees.

Unrecognized Provident Fund – It is not recognized by the commissioner of Income Tax and started by the employers and employees.

Public Provident Fund – Under the PPF Act 1968, it is yet another way of contributing to the provident fund. It is basically suitable for the self-employed people wherein the minimum contribution limit is set at Rs 500 per annum and a maximum of 150000 per annum.

Statutory Provident Fund – It is meant for the Government employees or the employees of Universities or Education Institutes affiliated to university.

Here are the tax treatment for different type of Provident Fund:

ParticularsRecognized PFUnrecognized PFStatutory   PFPublic PF
 

 

Employer’s Contribution

Contribution to 12% of salary does not attract tax and above that is added to the salary income of the employee. 

 

 

Not taxable

 

 

 

Not taxable

 

 

 

Not taxable

Employee’s ContributionSection 80C Deduction 

Not taxable

Section 80C DeductionSection 80C Deduction
 

 

Interest on PF

If the interest is over 9.5%, it is added to Income from Salaries. Until 9.5% interest is exempt. 

 

 

Not taxable

 

 

Exempt

 

 

Exempt

 

 

 

 

 

Amount withdrew at retirement time

 

 

 

 

 

Exempt subject to certain conditions*

Contribution from employer and interest on that is taxable under the head Income from Salaries; Contribution by an employee is not taxable, and employee’s contribution interest is taxable under the head Income from Other Sources. 

 

 

 

 

 

Exempt

 

 

 

 

 

 

Exempt

*Conditions:-

  • In case the employee has quit the job after five years of employment
  • The RPF balance is reassigned to RPF with a new employer in the case of re-employment
  • If the service period is less than five years the reason for termination is the health of the employer or his business
 
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An MBA in finance, I like to cover the wide range of topics related to Taxation, SEBI, Finance and anything that is Public Helpful. The motive is always to make it simpler for the taxpayers understand the system better and take informed decisions.

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