Provident Fund Exemption’s

By | July 22, 2015

Provident funds schemes are categorized in the following types;

  1. Statutory Provident Fund
  2. Recognized provident fund
  3. Un-recognized provident fund
  4. Public Provident Fund

The tax treatment of various items in case of different provident funds is as follows:

Statutory Provident Fund

Employer’s Contribution Employer’s contribution to such fund is not treated as income of the employee.
Interest Interest credited to such fund is exempt in the hands of the employee.
Amount received at the time of termination Lump sum amount received from such fund, at the time of termination of service is exempt in the hands of employees.

Recognized Provident Fund

Employer’s Contribution Employer’s contribution to such fund, up to 12% of salary is not treated as income of the employee. Salary for this purpose will include basic salary, dearness allowance, if the terms of service so provide and commission based on fixed percentage of turnover achieved by the employee.
Interest Interest credited to such fund up to 9.5% per annum is exempt in the hands of the employee, interest in excess of 9.5% is charged to tax in the hands of the employee.
Amount received at the time oftermination If below conditions are satisfied, then lump sum amount received from such fund, at the time of termination of service, is exempt in the hands of employees. Those conditions are;1.      Employee should be in continuous employment for the period of 5 years. In case transfer of PF balance from previous employer to current employer then the period of previous employer shall also be considered for purpose of continuous employment.2.      Service is terminated before 5 years on account of ill health or discontinuation of business or any circumstances beyond the control of employee.

3.      If on retirement, the employee takes employment with any other employer and the balance due and payable to him is transferred to his individual account in any recognized fund maintained by such other employer, then the amount so transferred will not be charged to tax.

 

Except above situations, payment from a recognized provident fund will be charged to tax considering such fund as un-recognized from the beginning.

Un-recognized Provident Fund

Employer’s Contribution Employer’s contribution to such fund is not treated as income of the employee.
Interest Interest credited to such fund is exempt in the hands of the employees.
Amount received at the time ofTermination 1.       Employee contribution is not chargeable to tax. Interest on employee contribution is chargeable to tax under the head income from other sources.2.       Employer contribution and interest thereon is chargeable to tax under the head income from salary. Whereas employee can claim the relief under section 89.

Public Provident Fund

Employer’s Contribution Employers do not contribute to such fund.
Interest Interest credited to such fund is exempt.
Amount received at the time oftermination Lump sum amount received from such fund at the time of termination of service is exempt from tax.

 

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