PROVIDENT FUND

 

The word 'Provident' means to provide for the future, hence this fund is to provide for the future. This fund is credited by an amount deducted from the salary of the employee every month at a certain rate and the employer also makes his own contribution to this fund. These contributions are invested to earn interest, which is also credited to the employee's provident fund account. When an employee retires from his service, he receives this amount in lump-sum along with interest on it and is a great help to him at that time. If, unfortunately, the employee dies during the tenure of his service, the amount of this fund is received by his wife and children or legal heirs, which is of great help to them. 

◆Provident funds are of four kinds –:

i)Statutory Provident Fund;

ii) Recognised Provident Fund;

iii) Unrecognised Provident Fund; 

iv) Public Provident Fund

i)Statutory Provident Fund. It is that Provident Fund to which the Indian Provident Fund Act, 1925, applies.

(Sec. 10(11) 

Generally, this Provident Fund is maintained by Government or Semi-Government offices, like– local authorities, universities, other recognised educational institutions, statutory corporations and nationalized banks, etc.

ii) Recognised Provident Fund. It is a fund to which the Provident Fund Act, 1952, applies. 

(Sec. 10(12)

There is one more alternative also. The fund which is not established under E.PF Act of 1952 has to be expressly recognised by the Chief Commissioner or Commissioner of Income Tax. Generally, this fund is maintained by scheduled hanks, factories and several business houses Thus, this fund is maintained by private sector organisations.

iii) Unrecognised Provident Fund. It is that provident fund which is neither statutory nor recognised. 

Any institution or organization can maintain this fund. It is approved by the P.F. Commissioner but not by the Commissioner of Income Tax. This is maintained in private sector organizations

(iv) Public Provident Fund. The Public Provident Fund Scheme was started from 1st July, 1968.

Every individual (including a salaried employee) can subscribe to this flind any amount being not less than 500 and not more than 1,50,000 in a year. One can also deposit money in installments which cannot exceed 12 in a year. An individual can open a public provident fund account either on his own behalf or on behalf of a minor of whom he is the guardian. 

◆Tax treatment of PROVIDENT FUND

1. Employee's provident fund

Tax treatment in respect of contribution made to any payment from various provident funds are summarised in the table given below.

1. Statutory provident fund - Fully exempt

2. Public provident fund - Fully exempt

3. Recognised provident fund -

1. Employer contribution to provident fund–exempt only to the extent of 12% of salary

2. Interest predicate to provident fund exempt only to the extend rate of interest does not exceed 9.5%

3.  Payment received at the time of retirement or  termination of services– Full exempt

4. Unrecognised provident fund–

1. Employer contribution to provident fund–Fully exempt 

2. Interest credited to provident fund– Fully exempt

3. Payment received at the time of retirement or termination of services–fully taxable of employers contribution.