Income Tax | Provident Funds and its types.

Provident Fund: – It is a retirement saving scheme for employee to give substantial benefits at the time of retirement. Under this scheme, a specified sum is deducted from the salary of employee at every month as his contribution.

In addition to this, employer also contribute the same amount to the fund.

Components of balance in a provident fund of an employee are as follows:-

1. Employee’s own contribution.
2. Employer’s contribution.
3. Interest on both employee and employer’s contribution.

At the time of retirement or resignation, accumulated balance of PF is paid to employee or his/her legal heirs.

Under section 80C of Income-tax Act, 1961, deduction is available on saving in a provident fund account.

Types of Provident Funds:-

Particulars	Statutory Provident Fund [SPF]	Recognised Provident Fund [RPF]	Unrecognised Provident Fund [URPF]	Public Provident Fund [PPF]
Covered under	Provident Funds Act,1925	EPF and Miscellaneous Provisions Act, 1952 It is recognised by the Commissioner of Income-tax.	No Act It is not recognised by the Commissioner of Income-tax.	Public Provident Fund Act,1968
Contributed by	Employer and employee	Employer and employee	Employer and employee	Every individual
Employee’s contribution	Deduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).	Deduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).	No eligibility for deduction.	Deduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).
Employer’s contribution	Fully exempt.	Excess of 12% of salary is taxable salary under section 17(1).	Not taxable	N.A [only assesse can contribute].
Interest credited on employee’s contribution	Exempt upto certain limit of contribution.	Excess of 9.5% p.a is taxable under salary under section 17(1).	Not taxable	Fully exempt.
Interested credited in employer’s contribution	Fully exempt.	Excess of 9.5% p.a is taxable under salary under section 17(1)	Not taxable	N.A

Amount withdrawn on retirement or termination:-

Particulars	Statutory Provident Fund [SPF]	Recognised Provident Fund [RPF]	Unrecognised Provident Fund [URPF]	Public Provident Fund [PPF]
Amount withdrawn on retirement or termination or resignation	Exempt under section 10(11).	Exempt under section 10(12) subject to certain conditions.	1. Employee’s contribution is not taxable. 2. Interest on employee’s contribution is taxable under income from other sources. 3. Employer’s contribution and interest thereon is salary	Exempt under section 10(11)

Note:-Interest on employee’s contribution in any previous year in the fund mentioned below on or after 01.04.2021 would be exempt upto the limit as mentioned below.

Contribution under SPF and RPF is upto the exemption limit i.e., Rs. 2,50,000 [Rs. 5,00,000, in case of fund in which there is no employer’s contribution].

Note:- As per section 10(11) [fund covered under PF Act, 1925] & 10(12) [RPF], exemption would not be available in respect of income by way of interest on contribution [if contribution extends the exemption limit i.e., Rs. 2,50,000/5,00,000.