PROVIDENT FUND

Govt has set up various kinds of Provident fund to encourage saving habits among people. Employers also contribute to this fund in addition to the employee’s contribution and are credited to the employees provident fund account.

Types of provident fund

1. Statutory provident fund
2. Recognized provident fund
3. Unrecognized provident fund
4. Public provident fund

1. Statutory provident Fund

SPF is set up under the provisions of the Provident fund act of 1925. this fund is maintained by Govt and semi government.

1. Employees contribution to this fund is unlimited and is forming a part of his salary and also getting a tax deduction up to a limit of Rs.100000/- according to section 80c to 80 u
2. Employers contribution not included in the employees salary so it is not taxable
3. Interest on the accumulated balance of the statutory provident fund is not included in salaries so it is also not taxable
4. lump sum received from SPF is fully exempt from tax as per S10(11)

2. Recognized provident fund

RPF is define as the name implies, it should be recognized by the commissioner of Income tax and should established under the scheme of Employees Provident Funds Act of 1952

1. Employees contribution to this fund is unlimited and is forming a part of his salary and also getting a tax deduction up to a limit of Rs.100000/- according to section 80c to 80 u
2. Employers contribution in excess of 12% of the employee’s salary is included employees salary for tax purpose
3. Interest on cumulated balance RPF in excess of 9.5% is included in his total income
4. Lump sum received is not taxable

3. Unrecognized Provident Fund

A provident fund which is neither SPF nor RPF is known as public provident fund but it should be recognized by the provident fund commissioner, mainly seen in private sector.

1. Employees contribution to this is included in his total income hence It is taxable ie here he won’t get any deduction under Sec. 80 C to 80 U
2. Employers contribution and interest on accumulate balance of the fund is not included in his salary income
3. Lump sum received from UPF, here income from the share of employers’ included in employees salary where as interest on his own contribution included as interest from other sources.

4. Public provident fund

Central Govt setup this provident fund under the public provident scheme of 1968 to the public whether a salaried person or not by opening an account at any branch of the SBI. The accumulated balance is payable after 15 years.