Different Types of Provident Fund and Tax Benefit Related to Investment in Provident Fund

There are different types of provident fund (PF) which are used by individual for investment and saving purpose and each is having different tax treatment.

But Broadly Provident fund can be categories into four categories

  1. Statutory Provident Fund(SPF)
  2. Recognized Provident Fund (RPF)
  3. Unrecognized Provident Fund(URPF)
  4. Public provident fund(PPF)

Explanation

  1. SPF is specially prepared for investment in provident fund account managed by the government for govt. employees.
  2. Recognized provident fund is a scheme to which PF Act1952 applies. According to this Act, a person who appoints 20 or more employees then he is liable to register himself under the PF act.
    1. The concern may join the govt. scheme set up by the PF Commissioner.
    2. Can be managed by employer himself by creating the trust for the provident fund and get the approval of CIT. This type of structure is generally created by the very large organizations.
  3. URPF is a scheme started by the employer & is not approved by the CIT.
  4. Under PPF any member from public whether is in employment or not may contribute to this fund. The minimum contribution is Rs. 500 p.a. & maximum 70000Rs. p.a., amount is repayable after 15 years with interest@8% p.a. From the income tax perspective best is statutory provident fund means PF which is compulsory in nature of govt. employees and Employer contribution is tax free and employee can claim tax deduction under section 80C of the income tax subject to maximum limit of Rs 100,000/-

 

Statutory provident fund
Employers contributionTax free-exempt
Employee contributionDeduction u/s 80C
Interest on contributionTax free
Effect at time of the receiptNo effect

 

Recognize provident fund
Employers contributionExempt upto 12%

In excess of 12% taxable in the year of contribution

Employee contributionDeduction u/s 80C
Interest on contributionExempt upto 9.5%

In excess of 9.5% taxable as salary in the year of accrued

Effect at time of the receiptIf conditions are satisfied then RPF amount is fully exempt (see note)

 

Unrecognized provident fund
Employers contributionTax free in the year of contribution
Employee contributionDeduction u/s 80C Not available
Interest on contributionTax free in the year of contribution
Effect at time of the receipt

  1. Employers contribution
  2. Employee contribution
  3. Interest on employers contribution
  4. Interest on employee contribution
 

Fully taxable

No effect

Taxable as salary

Taxable as income from other sources

Note-

At the time of retirement RPF is fully exempt if anyone of the following conditions is satisfied:

  1. Service is provided for the period of 5 years or more
  2. If service period is less than 5 years but reasons were out of control, e.g.-ill health, business discontinued by the employer, etc.
  3. Service period is less than 5 years he has joined another employer & balance in RPF account is transferred in RPF account of new employer- in this case consider service period of previous employer also for the purpose of 5 years while checking conditions of RPF.

    If at the time of retirement any of the 3 conditions are not satisfied then 2 treatments

    1. Employers contribution which was exempt in earlier years now taxable in the previous year of retirement (I.e.12% of salary which was exempt now cancelled)
    2. Interest on employers & employees contribution which was exempt in earlier years (9.5%) now taxable.

8 thoughts to “Different Types of Provident Fund and Tax Benefit Related to Investment in Provident Fund”

  1. Hello,

    I quit my job last April and had not completed 5 years of period. I withdrew my PF wih 30% tax deducted for the AY 2013-14. I had no other income apart from PF for FY 2012-13 and which is below the taxable income. So can I claim refund of the tax deducted on my PF for the AY 2013-14 ?

    Thanks in advance,
    Madhu

  2. How to pay incometax on the PF amount received? How do I know how much needs to be paid as Incometax on the PF amount received? In my case, I worked in an organization for the period Nov-2006 to Aug-2011 (not completed 5 years). I applied for the withdrawal in the month of AUG-2012. Received the PF amount in Jan-2013. Since I claimed the PF amount after 5 years and 9 months, do I still need to pay income tax on the PF amount received?

  3. Hello,

    I am working on in Private organisation and there was charged (Till July 13) provident fund on 12% on basic salary (Both Employer & Employee Provident Fund on 12% basic salary)

    Now WEF Aug 13 there is changes in Provident fund calculation. Organisation charged 12% PF on Gross Salary (Both Employer & Employee Provident Fund on 12% on Gross Salary)

    My query is there is any perquisites valluation or income tax on excess of 12% of basic salary?

    Kindly revert me urgently

  4. I had worked in an organisation for 9 years and had quit 8 years back. The PF was managed by the employees and understand it would have the status of a Registered PF. I had not claimed or transferred my PF to new employer and recently when I submitted my claim for PF settlement,I have been facing lot of problems in getting the settlement amount as the organisation claims to have misplaced old records and they do not have current records to check if my pf has been previously settled. I have provided all documents they ssked for I.e. Last salary slip of the organisation, last pf statement recd till 9 months before quitting, next organisation’s PF yearly statements etc. Now after 3 months due diligence the organisation is ready to pay my pf amount, but they are asking me to sign an indemnity, possibly to safeguard the organisation against making double payments, though such indemnity is not sought from recently resigned employees whose PF records are available with them. My queries
    (a) Is it prudent for me to give such an indemnity? Since the organisation seems to have misplaced my PF records, in the event that some employee had fraudulently made a claim in my name and withdrawn the pf amount, can the organisation later on make a claim on me asking me to refund the amount?
    (b) Am I legally entitled to seek a copy of the PF statement from the date of my resignation to date of final settlement? What if the organisation refuses to give such statement on the grounds that records are misplaced?
    (c) The organisation staff mentioned that as per their PF Trust rules, interest on the balance is payable only upto 3 months from the date of resignation of employee. I understand that the rule of PF trusts ordinarily requires them to pay interest for 3 years from date of resignation and after that the balance in the fund ceases to be entitled for interest. Please advise the correct position. If the organisation stand of paying interest for only 3 months instead of 3 years is not correct, what is the remedy available to me?

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