Provident Fund

Continuing with my earlier post, lets see wat role P.F plays in the deduction part in our salary slip.

Provident fund deduction which is reflected in the payslip is 12% of the basic salary. Provident fund is contributed by the employees and the employers as well. The contribution made by us is forming part of the income and there is no question of tax here.Meaning , the same can be claimed under section 80C. Coming to the contribution made by the employer, it is over and above our salary and it is taxable.

When planning for investments, it is necessary to consider the total P.F. deduction as the same is eligible for claiming under section 80C. So, when the total contribution made by you is Rs.25,000 in a year, the same can be claimed under section 80C (Which is having maximum limit of Rs.1,00,000)

Taxability of P.F
Lets see this from two angle
1. Continuing the employment under the same employer
2. Receipt of accumulated balance at the time of retirement or resignation

The Provident Fund Scheme ruling the private establishment is Recognized Provident Fund Scheme(R.P.F) governed by Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. Whereas , the government and semi government employees , universities would be governed by Provident Fund Act,1925.

So for a private sector employee, any contribution made by the employer over 12% of the salary would be taxable. Similarly , the interest on P.F is exempt upto 9.5%. Any interest over and above the rate is taxable.

( Have you ever calculated how much deduction is made for the P.F!!!!)

 At the time of retirement/ resignation

Nothing would be taxable if the following conditions are satisfied
1. If you are in service for more than 5 years
2. The service is for less than 5 years but you terminated the job due to ill health or discontinuance of business by your employer etc.,
3. When you get new job, the balance in the R.P.F account is transferred to the R.P.F account of the new organisation. So the number of years will be reckoned as a continuity from the previous employment.

Check whether you fit into these conditions , if not.....
1. Whatever amount which is not taxable will be taxed now.
2. If you have availed any tax concessions for your contribution under 80C, the same would be withdrawn now and taxable.

Lets understand this more with an example:
Basic salary  - Rs. 15,000
Your contribution - Rs. 1,800 (12% on Rs.15000)
Employer;s contribution - Rs.1800 ( Same as above)

Your take home would be Rs.13200 ( Rs.15000-1800). Your contribution can be claimed under section 80C for tax calculation.

For government and semi government employees:

Be it your contribution or employer's contribution or  interest on it or any lump sum received on retirement/resignation , nothing is taxable.

Details on other possible deduction are about to come....