Provident Fund -Types and Advantages

Last Updated at: January 10, 2020
467
Provident Fund -Types and Advantages

Long-term saving is quite a commitment but has to take place for the betterment of future benefits and emergencies. The Provident Fund (PF) is a benefit scheme after retirement that helps individuals save a part of their salary regularly which combines to provide enough funds for a good and healthy living after the retirement of individuals.

This scheme is provided by the Employment Provident Fund Organization (EPFO). All the companies having more than 20 members are eligible to apply for the EPF scheme.

Types of Provident Funds and Implication of Taxes:

Depending on the various conditions of taxes and their implications, Provident Funds are of 4 types, which include:

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

Statutory Provident Fund (SPF):

  • The local authorities, governmental bodies, railways, universities, etc. manage these Provident Funds.
  • This action falls under the Provident Funds Act, 1925.
  • The employer does not have to pay taxes on their contributions, while the employees’ contributions are taxable according to section 80c.
  • No tax implications are made on the interest provided as it is not considered as a part of the income.
  • One need not pay tax while redeeming the complete amount after retirement.
  • If the individual deactivates their PF account, no further tax implications are necessary, not even during the amount withdrawal procedure.

online pf registration

 Recognized Provident Fund (RPF): 

  • Recognized Provident Fund is one of the most popular PF. All the employees working in companies with more than 20 employees contribute to RPF.
  • The employee can either self-create a scheme under the PF trust for their contributions or can follow the scheme of the PF commissioner, but the CIT (Commissioner of Income Tax) has to approve all the schemes.
  • In case, the employees’ contribution is more than 12%, then it is taxable for the year in which the contribution is made.
  • The tax is deducted based on Section 80C for the employees’ share of contribution.
  • The total amount during the redemption is not taxable only if the employee has provided a continuous service of 5 years.

Unrecognized Provident Fund (UPF)

  • The CTI (Commissioner of Income Tax) does not recognize these funds.
  • Under these provident funds, the contributions made in a particular financial year are not taxable for the employer.
  • The tax deductions are also not made for the employee, i.e., Section 80C is not implied.
  • One need not pay tax on the interest.
  • During the time of withdrawal, this amount is taxable under the name of ‘Salary Income’. But, the contribution made by the employee is not taxable under this section, and rather other taxes are implied for it.

Public Provident Fund (PPF)

  • This scheme of Public Provident Fund is available for all in general, whether employed or unemployed.
  • The minimum contribution amount must be Rs. 500 and the maximum amount extends up to Rs. 1.5 lacs.
  • The repay of this amount so contributed takes place after a tenure of 15 years.
  • This acts as one of the most beneficial schemes for future savings and investments.
  • The interest so earned on the amount contributed is also tax-free.

Benefits of the Provident Funds

With the various types of Provident Fund Schemes, these also offer several benefits which allow the people to make their contributions.

Some of the benefits are as listed below:

  • Tax-free and Long-term: A lot of the middle-class people get hyped up about having to pay hefty amounts of taxes on their hard-earned money. These provident funds provide an escape and an excellent method for long-term secured financial savings.
  • Emergencies: These Provident savings can be a major help in the case of emergencies and situations of crisis, like an accident, health issues and others. In such cases, one can withdraw the amount pre-maturely.
  • Death: In the unexpected cases of the death of the employee, the saved amount can be a relief to their family.
  • Insurance and Pension: The life insurance of the employee and getting the interest amount as pension act as the added benefits of the Provident fund’s scheme.
  • UAN Number: The UAN Number provided to make the withdrawals and the contribution allow the employees to access their accounts anytime, anywhere and easily check the status, without even having to worry about switching jobs or other such cases.

Conclusion:

The Provident Funds scheme by the EPFO working on certain criteria and so does the procedure for withdrawals and redemptions. Many forms according to the needs of the employees are provided to undertake the various activities related to PF accounts.

We can use the Net-Banking on the EPFO portal to make the payment for the EPF.

As such, with various benefits and types, the EPF is a great option for future monetary security.

Provident Fund -Types and Advantages

467

Long-term saving is quite a commitment but has to take place for the betterment of future benefits and emergencies. The Provident Fund (PF) is a benefit scheme after retirement that helps individuals save a part of their salary regularly which combines to provide enough funds for a good and healthy living after the retirement of individuals.

This scheme is provided by the Employment Provident Fund Organization (EPFO). All the companies having more than 20 members are eligible to apply for the EPF scheme.

Types of Provident Funds and Implication of Taxes:

Depending on the various conditions of taxes and their implications, Provident Funds are of 4 types, which include:

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

Statutory Provident Fund (SPF):

  • The local authorities, governmental bodies, railways, universities, etc. manage these Provident Funds.
  • This action falls under the Provident Funds Act, 1925.
  • The employer does not have to pay taxes on their contributions, while the employees’ contributions are taxable according to section 80c.
  • No tax implications are made on the interest provided as it is not considered as a part of the income.
  • One need not pay tax while redeeming the complete amount after retirement.
  • If the individual deactivates their PF account, no further tax implications are necessary, not even during the amount withdrawal procedure.

online pf registration

 Recognized Provident Fund (RPF): 

  • Recognized Provident Fund is one of the most popular PF. All the employees working in companies with more than 20 employees contribute to RPF.
  • The employee can either self-create a scheme under the PF trust for their contributions or can follow the scheme of the PF commissioner, but the CIT (Commissioner of Income Tax) has to approve all the schemes.
  • In case, the employees’ contribution is more than 12%, then it is taxable for the year in which the contribution is made.
  • The tax is deducted based on Section 80C for the employees’ share of contribution.
  • The total amount during the redemption is not taxable only if the employee has provided a continuous service of 5 years.

Unrecognized Provident Fund (UPF)

  • The CTI (Commissioner of Income Tax) does not recognize these funds.
  • Under these provident funds, the contributions made in a particular financial year are not taxable for the employer.
  • The tax deductions are also not made for the employee, i.e., Section 80C is not implied.
  • One need not pay tax on the interest.
  • During the time of withdrawal, this amount is taxable under the name of ‘Salary Income’. But, the contribution made by the employee is not taxable under this section, and rather other taxes are implied for it.

Public Provident Fund (PPF)

  • This scheme of Public Provident Fund is available for all in general, whether employed or unemployed.
  • The minimum contribution amount must be Rs. 500 and the maximum amount extends up to Rs. 1.5 lacs.
  • The repay of this amount so contributed takes place after a tenure of 15 years.
  • This acts as one of the most beneficial schemes for future savings and investments.
  • The interest so earned on the amount contributed is also tax-free.

Benefits of the Provident Funds

With the various types of Provident Fund Schemes, these also offer several benefits which allow the people to make their contributions.

Some of the benefits are as listed below:

  • Tax-free and Long-term: A lot of the middle-class people get hyped up about having to pay hefty amounts of taxes on their hard-earned money. These provident funds provide an escape and an excellent method for long-term secured financial savings.
  • Emergencies: These Provident savings can be a major help in the case of emergencies and situations of crisis, like an accident, health issues and others. In such cases, one can withdraw the amount pre-maturely.
  • Death: In the unexpected cases of the death of the employee, the saved amount can be a relief to their family.
  • Insurance and Pension: The life insurance of the employee and getting the interest amount as pension act as the added benefits of the Provident fund’s scheme.
  • UAN Number: The UAN Number provided to make the withdrawals and the contribution allow the employees to access their accounts anytime, anywhere and easily check the status, without even having to worry about switching jobs or other such cases.

Conclusion:

The Provident Funds scheme by the EPFO working on certain criteria and so does the procedure for withdrawals and redemptions. Many forms according to the needs of the employees are provided to undertake the various activities related to PF accounts.

We can use the Net-Banking on the EPFO portal to make the payment for the EPF.

As such, with various benefits and types, the EPF is a great option for future monetary security.

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