• Mar
  • 10
  • 2014

Taxability of Provident Fund -Recognized, Unrecognized & Statutory

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Tax treatment of Recognized Provident Fund (RPF), Unrecognized Provident Fund (URPF), Statutory Provident Fund (SPF)

Section 10(11) and 10(12) of the Act deal with exemption on payments from provident funds, while section 80C of the act deals with allowance of deductions on contributions to provident funds. The following are the types of provident funds.

  1. Recognized Provident Fund (RPF): This scheme is applicable to an organization which employs 20 or more employees. An organization can also voluntarily opt for this scheme. All RPF schemes must be approved by The Commissioner of Income Tax. Here the company can either opt for government approved scheme or the employer and employees can together start a PF scheme by forming a Trust. The Trust so created shall invest funds in specified manner. The income of the trust shall also be exempt from income taxes.
  2. Unrecognized Provident Fund (URPF): Such schemes are those that are started by employer and employees in an establishment, but are not approved by The Commissioner of Income Tax. Since they are not recognized, URPF schemes have a different tax treatment as compared to RPFs.
  3. Statutory Provident Fund (SPF): This Fund is mainly meant for Government/University/Educational Institutes (affiliated to university) employees.
  4. Public Provident Fund (PPF): This is a scheme under Public Provident Fund Act 1968. In this scheme even self-employed persons can make a contribution. The minimum contribution is Rs.500 per annum and the maximum contribution is Rs. 100,000 per annum. The contribution made along with interest earned is repayable after 15 years, unless extended.

Tax treatment of Provident Fund can be discussed under two scenarios:

  • One during continuity of job, and
  • Upon receipt of accumulated balance of provident fund at the time of retirement or resignation

Summarized table showing tax treatment of provident funds

Fund During Continuity of Job Upon Retiremen
Employee’s Contribution Employer’s Contribution Interest on Provident Fund Repayment of sum on retirement, resignation or termination
RPF Deduction under Section 80C is available. Exempt upto 12% of Salary. Thus Contribution made by employer exceeding 12% shall be added to employee’s salary Income. Exempt upto 9.5%. Interest exceeding 9.5% shall be added to employee’s Salary Income. Nothing is taxable subject to following conditions:

  1. Employee left the job after five years of service OR
  2. Where Period of service less than 5 years, the termination is due to ill health, discontinuance of business of employer. OR
  3. here on re-employment, the balance in R.P.F is transferred to R.P.F with new employer. [For the purpose of computing 5 years period, Period of services rendered with previous employer shall also be included.]

If none of the above conditions are satisfied then:

  1. The amount not taxed earlier shall be taxed in the same manner as URPF, given below.
  2. Any tax concession (e.g. 80C) availed by assesses for contribution to RPF shall now be withdrawn.
URPF No deduction under section 80C available Any amount of contribution is not taxable Not taxable Sum received on retirement/ termination comprise of following:Employer’s Contribution and interest there on: Taxable as Salary Income.
Employee’s own Contribution : It is not taxable.
Interest on employee’s contribution: Taxable as income from other sources.
SPF Deduction under Section 80C is available. Fully Exempt Fully Exempt Fully Exempt
PPF Assessee / Employee can make contribution to PPF, No concept of Employer’s Contribution. Deduction under section 80C available on contribution made. Amount received (including interest) is Fully Exempt.

Frequently asked Questions:-

Q. When I left my earlier company, I opted for the withdrawal of my provident fund money that was being maintained by the company in a trust. The company deducted tax on withdrawal.I was under the impression that Employees Provident Fund is tax-free.Also, if I withdraw money from my Public Provident Fund account will that also be subject to tax?

A. – We presume your earlier company maintained a recognised provident fund account, which is referred to as RPF. On withdrawal from RPF at the time of termination of service, the accumulated balance is exempt from tax only if you have been in continuous service for a period of five years or more. Service rendered to the previous employer is also to be included. If the continuous service is less than five years due to reasons beyond your control (ill health, or discontinuance of employer’s business), you still will be eligible for exemption. If not, then you will be taxed on withdrawal of the accumulated balance from the RPF. Withdrawals from the PPF account is based on defined eligibility criteria. Such withdrawals are not taxed.

Q. I have got an offer from a company who has filed for an exemption from Provident Fund laws.

1. Is it legal to have such exemptions?
2. What are my alternatives to proceed with this company with respect to my PF account with my current company?
3. Can I still contribute to the PF account and what will be the tax benefits on the same?

A. Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, stipulates certain conditions that need to be satisfied for an establishment to be exempted from the operation of this Act. So it may be possible that this company is availing of the exemption legally. In respect of your PF account with your earlier employer, you could choose either of the following propositions:

1. Close the account and withdraw the balance lying to your credit. If your contributions are pertaining to five or more years of continuous period of employment, then there would be no tax impact on such withdrawal.

2. Transfer the balance PF from your old employer to your new employer. In this case, though, there would be no fresh contributions during your employment with the new employer.

Q.  I have changed my job. Can I transfer my Provident Fund deducted by the previous employer to my Provident Fund account with the new employer?

A. Yes, you can transfer your old Provident Fund account to your new employer. The process to do this is very simple. Upon your change in employment, file a Form 13 with the new employer. Thereafter, the labour consultant or human resources department of your new employer shall follow up on the transfer process with the Provident Fund authorities.

Q. Can I take an withdrawal/advance from the balance accumulated in my Provident Fund account?

A. Yes, you can take a withdrawal/advance from your Provident Fund account. Here is the process:

  • Upon resignation or retirement from an establishment you can apply for PF withdrawal using Form 19. Withdrawal is allowed under two options:
    1. If the member has attained 55 years of age; or
    2. ii. The member should not work in any covered establishment for a period of 2 months from the exit date.

    Additionally, you also have an option to withdraw funds from your Employee Pension Scheme. If you choose to do so, you will need to file an application using Form 10C.

  • You can also take an advances from your Provident Fund account, but only for certain specified purposes. The application for an advance is made using Form 31. Advance may be availed for the following purposes:
    • Marriage expenses for self, son, daughter and brother / sister
    • Education for self, son, daughter
    • Medical treatment
    • Purchase or construction of dwelling house.
    • Repayment of housing loan
    • Purchase of plot
    • Addition or alteration of house
    • Repair of house
    • Lockout or closure of establishment by employer
    • Withdrawal prior to retirement
  • Please note that the amount of advance or withdrawal is not required to be refunded back into the account under normal circumstances. However, if the amount is not utilized for the specified purpose, then the same will need to be refunded with penal interest.
  • A fixed minimum balance in the account has to be maintained before arriving at the amount of advance that can be taken from the account.

Q.Interest Rate for PF

A. The rate of interest that you earn on your PF investment is fixed by the Central Government every year in March / April. The rate of interest changes every year, but due to the nature of politics in India, it is usually higher than the prevailing market rates. The current rate of interest on PF (for FY 2010-11) is 9.5%.

Q. What is the taxability of interest on Provident fund deposits ?

A. The tax treatment of interest on Provident Fund is as follows

-Recognized Provident Fund:Interest on provident fund is exempt up to 9.5%. Interest exceeding 9.5% will be added to employee’s salary income

-Unrecognized Provident Fund: Not Taxable

-Statutory Provident Fund: Fully Exempt

-PPF: Fully exempt

(Complied by CA Sandeep Kanoi) – (Republished with amendments)


28 Responses to “Taxability of Provident Fund -Recognized, Unrecognized & Statutory”

  1. Asharma says:

    Hi,

    I have left the company in 2012 and till now i have not withdraw the PF but now that company is closed. So , how i can withdraw the PF now. as i donot have employer clearance?

  2. Asharma says:

    Hi,

    I have left the company in 2012 and till now i have not withdraw the PF but now that company is closed. So , how i can withdraw the PF now. as i donot have employer clearence.

  3. abhiram chilukuri says:

    I have worked in X company for more than 5 years and I withdrawn the total PF and after that I have joined in another company and i was there for 3 years and resigned from the said second company and also withdrawn the PF accumulated balance in the new PF account. So my question is since i was in continuous service for more than 5 years in first company does the balance drawn PF account of the second company just because i have opened new account with PF is it subject to taxable under salaries head ?

  4. naresh says:

    I am an employee covered under RPF. I will be retiring on 31.7.14 and will be withdrawing the whole sum in my PF account in the month of august 2014. i want to know whether i will be allowed deduction under 80C for the contribution made between the period April 2014 to July 2014 inspite the fact i am withdrawing the whole pf amount in the year 2014 itself?

  5. SIJU says:

    What is the applicable TDS for PF if withdrawing below 5years?

  6. Avinash says:

    Hello,

    For a situation where person has worked for less than 5 yrs service and he has withdrawn PF money.

    Is Income tax already deducted while paying PF money to employee or employee should pay Tax on amount he has got? pls clarify!

  7. Vinodrai K Shah says:

    Dear Mr.Sandeep Kanoi, It seems in-correct the max amt as 70,000 for PPF.It is Rs.1,00,000 One Lakh.- VKShah.

  8. Suresh says:

    hi,

    I have joined a firm from July 6, 2009 and was on probation for 6 months during which PF was not deducted from my salary.

    Now i am going to complete my 5 ears on July 6, 2014.

    Whether continues service will be counted from the date of joining or from the date when i became permanent employee of the company.

    Thanks
    Rohit

  9. Dr. Y S Sharma says:

    Sir, I am an employee of an educational institute and we RE GOVERNED BY statutory provident fund Act 1925. We are investing our money on our own in nationalized banks AS PER govt. order. Can we distribute the total interest earned by us or should we also follow the government rate of interest. Kindly help by replying at the earliest. Thanks.

  10. NIDHI says:

    I WAS WORKING WITH PUBLIC COMPANY FORM LAST 2 YEARS. THERE I WAS HAVING PF ACCOUNT. NOW I CHANGED JOB IN PRIVATE COMPANY AND PF ACCOUNT GOT TRANSFERRED.ARE THAT 2 YEARS WILL BE COUNTED IN TOTAL 5 YEARS FOR TAX IMPLICATIONS.?

  11. Raghavendra says:

    What is the Income Tax section / Act / rule which talks about before 5 years contribution is taxable?

  12. RB says:

    What is the meaning of continuous 5 years of services. I am total 10 years experienced person and working in 4th company in this tenure. I got PF transferred every time. But when I switched my companies, typically I kept a gap of 1/2 weeks. In this case will it not be considered as continuous service?
    Or does continuous service means getting salaries & vis-a-vis PF amount every month, doesnt matter from which employer it comes with the fact that PF amount was transferred from previous to new employer? Kindly suggest

  13. srilakshmi says:

    thank you so much for giving this information.
    it is very useful to me.

  14. Pravesh Kumar Saini says:

    Hello,
    In July 2011 I changed my company after 5years of service and joined another in India on next day. In the same year(2011) I withdrawal my PF from pervious company. Then next year in june2012 I again changed company out of India, becomes NRI and then withdrawal the all PF from July2011 to jun2012. So what component of my withdrawal PF in FY 2012-13 will be taxable?

  15. K B Malhotra says:

    Sir,

    My PPF a/c will mature next year after extension of 5 years. Will I have to return the tax benefit on the deposits I made during the precedings three years of my withdrawal of the deposits. As there is lock in period of -3- years in all the schemes covered un section 80 of income tax Act.

  16. DIPESH K. MOKANI says:

    Sir, will please tell us regarding deduction of TDS on interest paid in case of RPF in excess of exempted limit,

    Sir, as per section 17 it is a part of salary but at the same time there is no employer- employee relation between Recognized PF Trust and employee of the organisation who is liable for PF,

    So kindly tell me that who has to deduct TDS on excess interest paid on interest to members of PF Trust a)Employer organisation or b) PF Trust it self and also tell me under which section it is to be deducted.

    My email ID is dkmokani@gmail.com, so kindly do the needful by providing your guidance

  17. Rajesh says:

    I joined a company A in Sept.’2008 which had recognised provident fund. I changed my job in Sept.2011 and another company B had also recognised PF. I didn’t transfer my PF balance to company B. in Nov.’12, I changed the company again and joined company C. the company C has only two employees and hence no PF.
    Can I withdraw fund from my previous employers without paying any tax?
    Can I withdraw money and deposit in my housing loan so that no tax should be levied on my withdrawl?
    As the company C has no obligation to have PF, can withdrawal in such a circumstances will attract tax? As this situation is beyond my control.
    Can I open a personal PF account and deposit the entire withdrawl into that account.
    In short, I don’t want to pay tax on withdrawl as it was not a desired action o my part to withdraw the money but a forced circumstances.

    Please guide.

  18. payell says:

    My PF with my previous employers is yet to be withdrawn. Its been 5yrs I haven’t withdrawn my pf balance. Would you please guide me with the procedure as to how can I withdraw my pf balance from my previous employer.?

  19. dixit rajput says:

    dear sir,

    I done a job for 4 years and than gone abroad to dubai, so i withdraw my provident fund but now surprised that employer deducted 30% tax on pf.

    As i am going abroad why this tax on withdrawl.

    Can you explain if there is any provision for tax rebate while going abroad for employment of pf withdrawl. urgent

  20. Rupesh Aggarwal says:

    Dear Sir,

    i was working with RBS for 3 years after that i have discontinued to my services. and i withdraw my PF. they have deducted 30.90% TDS on it. moreover than have gven me interest 7.75% (PF maintained by company itself)for 2012 -2013 whereas interest is 8.6% for current year fix by govt.

    now my question is

    1. at what % they should deduct my TDS.
    2. can any tust who is maintaining employee PF fix lesser interest of PF than what govt has fixed.

    requested you to plz clear my doubt

  21. Madhvi Balani says:

    I worked for 24 years in one organisation. I left at the age of 49 years. After the completion of 50 years PF pension starts. I received after 5 years i.e. the age of 55 commutation and pension arrears of total Rs. 83000/-. should I pay tax on this amount?

    Your prompt response is highly appreciated.

    Thanks

    Madhvi
    (811940682

  22. sadeeq khan says:

    its pretty good i got many information thanks :)

  23. Chandrama says:

    My sister has recently left her job and settled abroad (where she is employed as well). When she asked for a PF withdrawal from her previous employer, she was informed that the withdrawal would attract a TDS of 30% as she had not completed 5 years in her previous job. Kindly inform whether this is in order ? Is there any way that the tax can be avoided legally ? Thanks

  24. natarajan says:

    Sir,
    Father is an IT assesse.He has already invested Rs.70,000 in PPF & RS.30,000 in NSC. Thus the the maximum is reached for exemption under Sec 80c.Grand father gift Rs. one lac to his grand daughter.A ppf account is opened by the father in the name of his minor daughter. The interest earned from PPF is exempt from Tax.There is no question of exemption under SEC 80C.The problem is whether the interest earned from the minor’s PPF a/c is exempt from IT or not. Further can the minor’s PPF a/c preclosed or not. kindly enlighten me with your advice.
    with regards
    natarajan

  25. PERMINDER says:

    In continuation to tax treatment on EPF withdrawl for service less than 5 year, my question is –

    1. How soon should my next employment be in order to save tax on RPF from previous company.
    2.I have worked less than 5 years and have left the job, if I get another job after two months can I transfer my PF from 1st company to second company.
    3.And finally say after 6 years of total service I stop working and then want to withdraw the RPF. will it be taxable (since my working is four and half in one company and after gap of 2 months one and half in second company.
    4. Will there be tax.

  26. Ram says:

    It’s 8% dear

  27. Mahesh Desai says:

    V. good information on PF/PPF.
    I would like to know the rate of interest on PPF account. Is it 9.5% or less than that. My other doubts are cleared from the above articles. Thanks & regards.

  28. PRABHAKAR DWIVEDI says:

    QUESTION:- DEAR SIR MAY I KNOW, RAGARDING SALARY STRUCTURE LIKE BASIC+CONVEYANCE ALLOW.+ HRA+SPL.ALLOW.+SKILL DEVLP.ALLOW.,CAN A EMPLOYER GIVE SALARY TO EMPLYEE IN MANY -2 ALLOWANCE FORM WITH COTEGORISATION AS ASSTT. TO JR.EXEC. OR SALARY RS.UP TO 20,999/- ONLY BASIC+SPL.ALLOW.& CAN EMPLOYER GIVE TO THIER EMPLOYEE ABOVE FROM EXECUTIVE TO ABOVE ALL OR SALARY RS.FROM 21000- TO AVOBE IN FORM OF BASIC+CONVEYANCE ALLOW.+HRA+SKILL DEVLP.ALLOW.+SPL.ALLOW.? WHY ARE SO MANY DIFFERENCES IN SALARY BIFURCATION ALLOWANCES ? IN CURRENT ARE GOV.MADE ANY RULE LIKE THIS DOING ? ARE LOWER SALARY BELOW RS.20999/-EMPLOYEE LIVING IN SELF HOUSE & USING HIS PERSONEL VEHICLE & HIRE SALARY INCOME EMPLOYEE LIVING IN RENTAL HOUSE & USING PUBLIC TRANSPORT ? SO GETTING CONVEYANCE ALLOW. HRA.IN SALARY FRO THEIR EMPLOYER ?
    MAY I KNOW WHAT IS THE PROCEDURE OF SALARY STRUCTURING IN CO. IT MEANS HIRE LEVEL EMPLOYEE CAN SAVE TAX THRU.HRA & CONVEYANCE ALLW.& LOWER EMPLOYEE GIVE TAX ??………..? IF POSSIVLE PLS…..GIVE THE ANSWER……
    THANKS

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