Categories B.COMECO-11: ELEMENTS OF INCOME TAXIGNOUIGNOU ASSIGNMENTS

PROVIDENT FUND – SHORT NOTE

Question 5. Write brief notes on the following:
ii) Provident Fund.

Solution: Provident fund scheme is a scheme intended to give substantial benefits to an employee at the time of his retirement. Under this scheme, a specified sum is deducted from the salary of the employee as his contribution towards the fund. The employer also generally contributes the same amount out of his pocket, to the fund. The contribution of the employer and the employee are invested in approved securities. Interest earned thereon is also credited to the account of the employee.

There are four types of provident funds:

  1. Statutory Provident Fund (SPF)
  2. Recognised Provident Fund (RPF)
  3. Unrecognised Provident Fund (URPF)
  4. Public Provident Fund (PPF

The tax treatment is given below:

Particulars SPF RPF URPF PPF
Employer’s Contribution Fully exempt Amount in excess of 12.00% of salary is taxable Not taxable yearly N.A. (as there is only assessee’s own contribution)
Employee’s Contribution Eligible for deduction u/s 80C Eligible for deduction u/s 80C Not eligible for deduction Eligible for deduction u/s 80C
Interest on PF Fully exempt Amount in excess of 9.50% p.a. is taxable Not taxable yearly Fully exempt
Amount received on retirement, etc. Fully exempt u/s 10(11) SEE NOTE 1 SEE NOTE 3 Fully exempt u/s 10(11)

NOTE:

1) Amount received on the maturity of RPF is fully exempt in case of an employee who has rendered continuous service for a period of 5 years or more. In case the maturity of RPF takes place within 5 years then the amount received would be fully exempt only if the service had been terminated due to employee’s ill-health or discontinuance or contraction of employer’s business or other reason beyond control of the employee. In any other case, the amount received will be taxable in the same manner as that of an URPF.

2) If, after termination of his employment with one employer, the employee obtains employment under another employer, then, only so much of the accumulated balance in his provident fund account will be exempt which is transferred to his individual account in a recognised provident fund maintained by the new employer. In such a case, for exemption of payment of accumulated balance by the new employer, the period of service with the former employer shall also be taken into account for computing the period of five years’ continuous service.

3) Employee’s contribution is not taxable but interest thereon is taxable under ‘Income from Other Sources’. Employer’s contribution and interest thereon is taxed as Salary.

4) Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits, forming part of salary and commission which is expressed as a fixed percentage of turnover

 

 

Click here to DOWNLOAD answer:
For Other subjects click Here

If you have any query comment below. If you really enjoyed this post, don’t forget to like this post.
For more future updates visit our facebook page and follow us on facebook.

About the author

Having on his soul, the passion to be the Virtuoso of the enumerated aspects of commerce, Dipesh Aggarwal is indulged in the constant process of absorbing the maximum from the infinite knowledge pool available. Mentoring the youth has proved to be his successful manoeuvre in contemplating, analysing and executing his understanding of varying and crucial aspects.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.