Income Tax on PF ( Provident Fund ) for Various Types of PF Account

There are various types of provident fund (PF) accounts that individuals use for savings. Also, the income tax rules for PF contribution, withdrawal and income on PF vary depending on the type of PF account. Let us understand the various type of provident funds and their tax implications:

Types of Provident Funds

There are different types of provident funds utilised by a person for investment or regular savings for retirement. They are as follows:

• Statutory Provident Fund – This scheme is set up under the Provident Funds Act, 1925. It is meant for government employees, universities, recognised educational Institutions, railways, etc. It is also known as the General Provident Fund (GPF). The interest rates of general provident funds are revised from time to time by the government. The private sector employees are not eligible for the general provident fund.
• Recognised Provident Fund – The Provident Fund Act, 1952 applies to all establishments employing 20 or more employees. The establishments covered under the scheme can either apply for the government-approved scheme or start a PF scheme by forming their trust. The establishments can join the government-approved scheme set up under the PF Act 1952, which is a recognised provident fund. Alternatively, the establishment’s employer and employee can create a provident fund scheme by forming a trust, and funds are invested as per rules prescribed under the PF Act, 1952. The commissioner of income tax must approve the scheme to receive the status of the recognised provident fund.
• Unrecognised Provident Fund – If the commissioner of income tax does not approve the provident fund scheme created by the employer and employee (as mentioned above), then such scheme is an unrecognised provident fund scheme.
• Public Provident Fund – The government has established a provident fund for the general public. Any person can contribute to this scheme by opening a public provident fund account with the authorised bank. The person can deposit an amount starting from Rs.500 to Rs.1,50,000. The corpus of the PPF can be fully withdrawn after the completion of 15 years.

Employees' Provident Fund(EPF)

EPF, or Employees' Provident Fund, is a well-known provident fund scheme often discussed in salary-related matters. It is widely adopted by private sector organizations employing 20 or more individuals.

The rate of returns on the balance held in an individual's EPF account is contingent on the prevailing interest rate. As of March 2023, the interest rate stands at 8.15% per annum.

Under the EPF scheme, both the employer and the employee make monthly contributions to the employee's account, usually in equal proportions. The specific percentage of contributions and the corresponding accounts they are allocated to vary based on the employee's salary.

For individuals with a salary of ₹15,000 or lower, the EPF contributions are distributed as follows:

1. Employee contribution to EPF: 12% of the salary.
2. Employer contribution to EPF: 3.67% of the salary.
3. Employer contribution to EPS: 8.33% of the salary, limited to a maximum of ₹1,250 (ceiling amount).

This allocation ensures that 12% of the employee's salary goes towards the EPF, while the employer contributes 3.67% to the EPF and 8.33% (up to ₹1,250) to the EPS.

For individuals exceeding a salary of ₹15,000, the EPF contributions are distributed as follows:

1. Employee contribution to EPF: 12% of the salary.
2. Employer contribution to EPF: 3.67% of the salary.
3. Employer contribution to EPS: A fixed amount of ₹1,250.
4. Additional employer contribution to EPF: The remaining amount, calculated as (8.33% of the salary) minus ₹1,250.

This distribution ensures that the employee contributes 12% of their salary to the EPF, while the employer contributes 3.67% to the EPF, ₹1,250 to the EPS, and the remaining balance (8.33% of the salary minus ₹1,250) to the EPF.

Tax Treatment for Various Types of Provident Funds

Statutory Provident Fund Account
 

Recognised Provident Fund Account
 

Unrecognised Provident Fund Account
 

Public Provident Fund Account
 

*Salary means basic pay plus dearness allowance.

Frequently Asked Questions
 

What are the various schemes under the Employee’s Provident Fund & Miscellaneous Provisions Act, 1952?

There are three different schemes under the Act, namely: 

• Employees’ Provident Fund Scheme– a scheme where the employee can save or accumulate funds for retirement.
• Employee’s Pension Fund Scheme– a scheme where a monthly pension is received on an employee’s retirement.
• Employee’s Deposit Linked Insurance Scheme- It provides assurance benefits upon the death of an employee while in service. 

Is there any TDS on the withdrawal of EPF balance?

Yes, tax is deducted at source @10% if PF is withdrawn before 5 years of service. However, if the withdrawal amount is less than Rs.50,000, then no TDS is deducted.
 

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