What are the different types of Provident Fund

 

Different types of Provident Funds

(a) Statutory Provident Fund:

Statutory provident fund is the oldest type of fund. It was started in the year 1925 through a Provident Fund Act of 1925. This fund was started with a view of promoting savings amongst government employees. Generally this fund is maintained by Government or Semi- Government departments like Railways, RBI, Colleges, Universities, local bodies, Insurance companies etc. The employer’s contribution towards the employee’s statutory provident fund and the amount of interest earned on the accumulated balance to the employee’s credit balance is not to be included in the income of the employee and so it is ignored.

When the employee retires or leaves the service and receives any amount from the accumulated balance to his credit in the statutory provident fund, the amount so received will not be included in employee’s total income [Section 10(11)] being exempted income. Employee’s own contribution will qualify for deduction u/s 80C

 

(b) Recognised Provident Fund:

As the name suggests, it is a fund to which the Commissioner of Income Tax has given the recognition as required under the Income Tax Act. Generally this fund is maintained by industrial undertakings, business houses, banks etc.

The employer’s contribution over and above 12% of employee’s salary, will be included in employee’s salary income for tax purposes., whereas the employee’s contribution towards this fund will fully qualify for deduction u/s 80C

Interest on Provident Fund credit balance upto prescribed rate (9.5%) is exempted but interest credited over and above such rate is deemed to be employee’s salary income and is included in salary income of that previous year.

 

(c)   Unrecognised Provident Fund:

It is the provident fund which is not recognized by the commissioner of Income Tax. The employee and the employer both contribute towards this fund.

The employee’s contribution is added in his salary and he will not be allowed any deduction u/s 80C regarding his contribution while computing the total income of the employee. The employer’s contribution and interest on the accumulated credit balance of the fund are not to be included in employee’s salary income from year to year.

A payment received out of this fund is taxable so far it represents the employer’s contribution and interest thereon. The employee is entitled to relief under section 89(1) as employee’s contribution is ignored because it was taxed when it was contributed. Interest on employee’s own contribution will be taxable as ‘Income from Other Sources’ and not as salary income.

 

(d) Public Provident Fund:

So far all the above funds were for the salaried people. On July 1,1968 a new fund known as public provident fund was started so that self employed people may also enjoy the benefit of deduction u/s 80C

The full withdrawal of this fund is possible only after 15 year but in case of death of the subscriber full repayment will be made to the legal heir of nominee. Partial withdrawal and loans are also possible.

The subscription made towards this type of fund is eligible for deduction in the similar manner, as in the case of statutory provident fund. Interest credited in this account is fully exempted.