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Tuesday, 19 March 2013

Define provident fund and explain various kinds and their working system









Provident Fund :-
This fund is maintained by a govt. and private organizations for the benefit of the employees. This fund is consists upon the following :
I)       Contribution of the employee
II)     Contribution of the employer
III)  The interest credited

Every month a particular amount is deducted from the employees salary. Generally employer also contributes the same amount in this fund.

Provident fund is invested in profitable business. So the amount of interest is credited in this fund. At the time of retirement the whole amount paid to the employee.


KINDS :
1.      Govt. Provident Funds :-
It is maintained by Govt. and sami govt. organizations :
Example : I) Federal Govt. ii) Provincial Govt.

a) Employees contribution to this fund is chargeable to tax.
b) Employer contribution is not included in salary and not chargeable to tax.
c)      Interest on provident fund is not included in salary and not chargeable to tax. 
d)      The amount paid to the employee at the time of retirement is not taxable.

2.      Recognized Provident Funds :-
This fund is maintained by a private organizations after completing the conditions prescribed by law.

For the recognition of this fund application is submitted to the income tax commissioner. If the grants recognition to such funds then it is called recognized provident fund. This fund is beneficial for the both the employer and employees.

Treatment :-
I)       Employers contribution is not included in the salary and it is taxable.
II)     Employees contribution is included in the salary and it is taxable.
III)  Interest credited to this fund is not included in salary and the rate of interest is exempt up to 16% or 1/3 of the salary.
IV)  The amount of fund received by the employee is tax free.

3.      Unrecognized Provident Fund :-
If the private organization maintains such fund without the recognition of the income tax commissioner, it is called unrecognized provident fund.

Treatment :-
I)       Employees contribution is included in the salary and not taxable.
II)     Employers contribution is not included in the salary and also not taxable.
III)   Interest credited is also not taxable.
At the3 time of retirement such amount received is taxable to the extent of employers contribution is taxable and interest there on.

6 comments:

Retirement Benefit Consulting 27 March 2015 at 03:34  

What can I do, if my PF withdrawal or transfer request is stuck and is not getting completed?

Retirement Benefit Consulting 27 March 2015 at 04:03  

A employee is contributing his PF according to PF norms, after one or more year employee got promoted and gets increment on his salary.Now employee don't want to contribute PF from his salary. ..

Provident Fund Management System 11 May 2015 at 02:07  

Check fraud is the biggest challenges facing businesses. With the development of computer technology it increasingly easy for criminals, either freedom or in organized gangs, to manipulate checks in this a way as to deceive innocent victims expecting value in exchange for their money.

DKM Online 2 June 2015 at 00:13  

What are the benefits provided under Employee Provident Fund Scheme?
Provident Fund Management System

DKM Online 6 July 2015 at 03:51  

Provident is one of the most successful small saving scheme meant for retirement planning of employees. EPF mandates employers to contribute equivalent contribution to that of employees for their benefit.
Provident Fund Management System

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