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

Summarized table showing tax treatment of provident

funds
FUN
During Continuity of Job
Upon Retiremen
D
Employers
Repayment of sum on
Employees
Interest on
Contributio
retirement, resignation
Contribution
Provident Fund
n
or TERMINATION
RPF Deduction
Exempt upto Exempt upto 9.5%. Nothing is taxable subject
under Section 12% of
Interest EXCEEDIN to following conditions:
80C is
Salary. Thus G 9.5% shall be 1.
Employee left the
available.
Contribution added to employees job after five years of
made by
Salary Income.
service OR
employer
2.
Where PERIOD
exceeding
of service less than 5

12% shall be
added to
employees
salary
Income.

years, the termination

is due to ill health,
discontinuance of
business of employer.
OR
3.
here on reemployment, 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.]

URPF No deduction
under SECTIO
N 80C
available

Any amount Not taxable

of
contribution
is not
taxable

SPF

Fully

Deduction

Fully Exempt

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 conces
sion (e.g. 80C) availed
by assesses for
contribution to RPF
shall now be
withdrawn.
Sum received on
retirement/ TERMINATIO
N comprise of
following:Employers
Contribution and interest
there on: Taxable as
Salary Income.
Employees own
Contribution : It is not
taxable.
Interest on employees
contribution: Taxable as
income from other
sources.
Fully Exempt

PPF

under Section Exempt

80C is
available.
Assessee / Employee can make contribution to
PPF, No concept of Employers Contribution.
Deduction under section 80C available on
contribution made.

Amount received
(including interest) is
Fully Exempt.