What is a Provident Fund?

What is a Provident Fund?

A Provident Fund is a savings and investment initiative established voluntarily by both employers and employees to serve as a long-term financial reserve, primarily intended to support an employee’s retirement. The Employees Provident Fund Act, 1952 aims to provide a kind of social security to the industrial workers. The act mainly focuses on providing retirement or age-old benefits such as Provident Funds, Superannuation Pensions, Family Pensions, and Deposit-linked Insurance....

Types of Provident Fund

1. Statutory Provident Fund (SPF): It is commonly referred to as a government provident fund, it is specifically designed for employees in government, semi-government, universities, educational institutions affiliated with a university established under statute, or other specified institutions....

Employee Provident Funds, 1952

The Employee Provident Funds, 1952 represents a beneficial legislation designed to enhance the future prospects of industrial workers. This law serves the following purposes:...

Applicability of Provident Fund

1. Factories in Designated Industries: This includes any factory involved in industries specified in Schedule 1, provided it employs 20 or more individuals....

Eligibility Criteria for EPF

Any individual employed for the work of the establishment, whether directly or through a contractor, is eligible for the benefits provided by the Act. This eligibility is based on the connection of the work with the establishment....

Taxability and Withdrawal Rules of Provident Fund

Understanding the tax implications and withdrawal options related to Provident Fund (PF) is essential for employees. The deduction of PF can be claimed under Section 80C when computing Income Tax. Importantly, when an employee withdraws the PF amount along with the accrued interest after retirement, neither the PF amount nor the interest is subject to taxation....

Income Tax Liability on PF Withdrawal

Scenario Taxability Amount withdrawn is < ₹50,000 before completion of 5 continuous years of service. No Tax Deducted at Source (TDS) is applicable; however, the amount of Provident Fund (PF) should be disclosed while filling the return. Amount withdrawn is > ₹50,000 before completion of 5 years of continuous service. TDS is applicable at a rate of 10% when PAN is furnished. However, no TDS is deducted if Form 15G or 15H is furnished. Withdrawal of EPF after 5 years of continuous service No mention is required in the return as the amount is not taxable, and consequently, no Tax Deducted at Source (TDS) is applicable. Transfer of PF from one account to another upon a change of job. No inclusion in the return is necessary, given that the amount in question is not deemed taxable. Consequently, there is no applicability of Tax Deducted at Source (TDS). Before completion of 5 continuous years of service, if employment is terminated due to employee’s ill health, the business of the employer is discontinued or the reasons for withdrawal are beyond the employee’s control. It is unnecessary to include the aforementioned amount in the return, as it is not deemed taxable. Consequently, there is no applicability of Tax Deducted at Source (TDS)....

Universal Account Number (UAN)

Universal Account Number (UAN) is a number that is given to an employee by the Ministry of Employment and Labour under the Government of India, who maintains provident fund accounts. UAN is used to track information done by his employer regarding his provident fund. Earlier, when an employee joins a new organization, it used to assign a new PF account; however, after the UAN came into existence, the process became smooth. Hence through UAN, difficulties faced by the employee when he/she joins a new organization can be solved and their activities can be tracked if there are any payment-related issues....

Conclusion

Understanding the intricacies of Provident Funds (PF) is paramount for both employers and employees in navigating long-term financial planning and retirement benefits. From the diverse types of PFs, such as the Statutory Provident Fund (SPF), Public Provident Fund (PPF), and Recognized Provident Fund (RPF) to the tax implications and withdrawal rules, individuals can make informed decisions tailored to their financial needs....

Employee Provident Funds, 1952- FAQs

What is the purpose of the Employee Provident Funds Act of 1952?...