Exemption for amount received from Statutory and Recognized Provident Fund

Provisions of section 10(11) of the Income Tax Act exempts any payment received from the ‘Statutory Provident Fund’, whereas, provisions of section 10(12) of the Income Tax Act exempts the accumulated balance payable to an employee participating in the ‘Recognized Provident Fund’.

The present article provides the understanding for both the exemption section i.e., section 10(11) and section 10(12).

Understanding the Statutory Provident Fund and Recognized Provident Fund

The primary purpose of the provident fund is that it facilitates the employees with the lump sum amount, at the time of his exit from the place of employment. Broadly speaking, the provident funds can be divided into four types, namely Statutory Provident Fund; Recognized Provident Fund; Unrecognized Provident Fund; and Public Provident Fund.

Since section 10(11) and section 10(12) provides exemption towards the Statutory Provident Fund and Recognized Provident Fund, we would hereunder understand some of the general basics of the same.

The Government; Governmental bodies; railways; local authorities etc. maintains the Statutory Provident Fund. The Provident Fund Act, 1925 is applicable to the Statutory Provident Fund.

On the other hand, any establishment or business entity having 20 or more employees can join the Recognized Provident Fund. The establishment/ business entity can themselves create the scheme under the Recognized Provident Fund and manage the same. However, all the Recognized Provident Fund schemes are mandatorily required to be approved by the Commissioner of Income Tax.

Exemption available under section 10(11) of the Income Tax Act

Provisions of section 10(11) fully exempt the amount received from the Statutory Provident Fund. It also fully exempts the amount received from any other provident fund, which is set up and notified by the Central Government.

Exemption available under section 10(12) of the Income Tax Act

Provisions of section 10(12) exempt the accumulated balance, due and payable, to the employee participating in the Recognized Provident Fund. The exemption is available to the extent covered in Rule 8 of Part A of the Fourth Schedule.

As per rule 8 of part A of the fourth schedule, accumulated balance payable to an employee covered in a Recognized Provident Fund shall be exempted only under any of the following cases-

  • The employee has provided continuous service, with his employer, for a period of 5 years or more.
  • In case the service of the employee is terminated before the period of 5 years, the reason for termination should be any of the following-
    • Termination of service due to Employee’s ill-health; or
    • Termination of service by the contraction; or
    • Termination of service due to discontinuation of employer’s business; or
    • Termination of service due to any reason which is beyond the control of the employee.
  • In case of cessation of employment, the employee takes employment with any other employer, then, the accumulated balance (due and payable) to the employee is transferred to his individual account in any Recognized Provident Fund managed by such other employer.

Table – Articles on Section 10 Exemptions

Sr. No. Particulars
1 Section 10(1)– Exemption to Agricultural Income
2 Section 10(2) Exemption to amount received by co-parcener from HUF
3 Section 10(2A) Exemption towards share of income from firm/LLP
4 Exemptions towards interest to non-residents | Section 10(4) & 10(4B)
5 Exemption on Tax paid by Govt or Indian concern on certain income of a foreign company
6 Section 10(7) Perquisites/allowances exemption to Govt employees serving outside India
7 Exemption- Section 10(8A) & section 10(8B) of Income Tax Act
8 Exemption towards commuted value of pension Section 10(10A)
9 Exemption towards retrenchment compensation received by workman Section 10(10B)
10 Section 10(10BC) Exemption towards compensation received on account of any disaster
11 Section 10(10C) Exemption of amount received on voluntary retirement
12 Exemption towards tax paid by employer on non-monetary perquisites: Section 10(10CC)
13 Section 10(10D) Exemption towards amount received under a Life Insurance Policy
14 Exemption for amount received from Statutory & Recognized PF
15 Exemption for payment from approved superannuation fund Section 10(13)
16 Income Tax Exemption on prescribed allowances/ benefits | Section 10(14)
17 Section 10(15) Exemption- Interest on Bonds, Debentures, Securities
18 Scholarship exemption | Section 10(16) | Income Tax Act 1961
19 Exemption towards income for administration of Charitable or Religious Institution
20 Section 10(32) Exemption | Income of minor clubbed with parent
21 Exemption for dividend income received from Indian Company | Section 10(34)
22 Section 10(34A) Exemption towards income received by a shareholder on buy back of shares
23 Section 10(35) Exemption towards income received from units
24 Section 10(37) Exemption towards Capital Gain arising on Compulsory Acquisition of Urban Agricultural Land

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