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Accounting, Business, Finance, Taxes

Provident Fund (PF)

The Provident Fund (PF) is a pension fund that helps people regularly save a portion of their salary to provide enough money for a good and healthy lifestyle after retirement.

This program is provided by the Employment Provident Fund Organization (EPFO). All companies with more than 20 members can apply for the EPF scheme.

Types of Provident Funds and the importance of taxes:

Depending on different tax conditions and their implications, there are four types of funds, including:

  • Statutory Provident Fund
  • Recognized Provident Fund
  • Unrecognized Provident Fund
  • Public Provident Fund

Statutory Provident Fund (SPF):

  • The local authorities, government agencies, railways, universities, etc. They manage this Provident fund.
    • This action falls within the scope of the Insurance Funds Act of 1925.
    • Employers may not have tax on their contributions, while employee contributions are taxable under 80c.
    • There are no tax implications for the interest provided as this is not considered part of the income.
    • You don’t have to pay taxes if you redeem the full amount after retirement.
    • If the person deactivates their PF account, no additional tax implications are required during the withdrawal process.

Recognized Provident Fund (RPF):

  • Recognized Provident Fund is quite popular. All employees in companies with more than 20 employees contribute to the PF.
  • Employees can set up the scheme for their contributions in their own PF trust or follow the PF commissioner system, but CIT (Commissioner of Income Tax) must approve all schemes.
  • If the employee’s contribution is more than 12%, it will be taxed for the year in which the contribution was made.
  • Tax is deducted under Section 80B for the share of employee contributions.
  • The total amount at the time of redemption is exempt from tax only if the employee has worked continuously for five years.

Unrecognized Provident Fund (UPF):

  • The Commissioner of Income Tax, i.e. CTI, does not recognize these funds.
  • With this insurance fund, contributions made during the financial year are not subject to tax.
  • No tax breaks are made for employees either, i.e. Section 80B is not implied.
  • No need to pay interest tax.
  • This amount is taxable as “salary income” at the time of withdrawal. However, employee contributions are not taxed under this section, but other taxes are assumed for them.

Public Provident Fund (PPF)

  • This scheme of public provident funds is generally available for everyone, regardless of whether they are employed or unemployed.
  • The minimum rate should be Rs. 500, and the maximum amount extends up to Rs 1.5 lacs.
  • This amount is paid after 15 years.
  • It is one of the most profitable programs for future savings and investment.
  • Interest on the amount paid is also tax-free.

UAN Number: The UAN number provided for withdrawals and installments allows employees to access their accounts anytime and anywhere and easily check their status without worrying about job changes or similar cases.