Rabia Saghar Advocate High Court
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Published Jun 20, 2020
A Provident fundis a contributory retirement plan to benefit the employees. The establishment settles the Provident Fund in the form of Trust which is required to be registered with the concerned sub-registrar for getting the status of an independent statutory body.The provident fund is established in the following three forms.
- Statutory Provident Funds;
- Recognized Provident Funds;
- Unrecognized Provident Funds;
Statutory Provident Fund is setunder the Provident Fund Act, 1925. It is maintained by the Government, semi Government, local authorities, and other many business institutions. This form is exempted from Income Tax and payments from such funds do not need recognition from the Commissioner Inland Revenue.
The recognized Provident Fundis recognized by the Commissioner Inland Revenue under the Sixth Schedule of Income Tax Ordinance, 2001. This type of Provident Fund is maintained by private sector organizations. Payments from such Provident funds are also exempted from Income Tax.
Unrecognized Provident Fund:
This form of the provident fund hasno exemptions from tax. The tax is charged on the employer's contributions and interest thereon only once at the time of payments made to the employee.
The Provident Fund Trust:
The provident fund is governed by the provident fund trust of each establishment. The trustees of such Trust are liable for the collection of contributions from employers and employees monthly and to invest the same in various permissible schemes and securities.
The Trust Deed for the Provident Fund Trust is written on the Stamp Paper. The Trust Deed and the Rules therein specify the terms and conditions, roles and responsibilities, rights and duties of the company, employees, trustees, auditors, bankers, actuaries. This trust is registered with the registrar.
Trustees of The Provident Fund Trust:
The Provident fund is created by the employer in the form of an irrevocable trust reflecting the name of the Company and containing the term Employees' Contributory Provident Fund. At least three to five trustees are appointed for the management of the Trust who are named in the Trust Deed.
The Provident Fund Trust Rulesare separately drafted. The Trust Deed and the Rules specify the terms and conditions of the company, employees, trustees, auditors, bankers, actuaries.
The Provident Fund Act, 1925
The Sixth Schedule of Income Tax Ordinance, 2001.
Statutory Provident Fund is set under the Provident Fund Act, 1925. It is maintained by the Government, semi Government, local authorities, and other many business institutions. This form is exempted from Income Tax and payments from such funds do not need recognition from the Commissioner Inland Revenue.What are the laws for provident fund? ›
Short title, extent and commencement. (1) This Act may be called the Provident Funds Act, 1925 . (2) It extends to the whole of India 2 except the State of Jammu and Kashmir] 3 . (3) It shall come into force on such date 4 as the Central Government may, by notification in the Official Gazette, appoint.What is provident fund answer? ›
Provident fund is a government-managed retirement savings scheme for employees who can contribute a part of their pension fund every month. These monthly savings get accumulated every month, easily accessible as a lump sum amount at retirement or the end of employment.What are the benefits of provident fund in Pakistan? ›
The members of the Provident fund can have the facility of loan / temporary withdrawal. They can also have the facility of permanent withdrawal on certain grounds. Interest free loans can also be availed, however, they are certain limits to loans as given in the Rules.What is the limit of provident fund? ›
The total contribution i.e., voluntary + mandatory can be up to Rs. 15,000 per month. The member can also contribute on higher wages i.e., greater than Rs. 15,000 but only up to a maximum limit of 100% of the PF wages, provided they get permission from the APFC/RPFC as per the provisions of para-26(6) of the scheme.What are the benefits of provident fund? ›
- Monthly benefits for superannuation/ retirement, disability, survivor, widow (er), children.
- Amount of pension based on average salary during the preceding 12 months from the date of exit and total years of employment.
- Minimum pension on disablement.
- Statutory Provident Fund. Also known as the General Provident Fund (GPF), the Statutory Provident Fund was set up under the Provident Funds Act 1925. ...
- Recognised Provident Fund. ...
- Unrecognised Provident Fund. ...
- Public Provident Fund.
What is a provident fund? A provident fund is an investment fund that is voluntarily established by Employer and employees to serve as long term savings to support an employee's retirement. Sources of fund: Employee's contribution: The amount deducted from the employee's salary at a rate of 2% – 15%.Can we deny provident fund? ›
Provident fund opt out procedure
If an employee wants to opt out of PF, he can fill out Form 11 at the time of joining his first job. He will also have to present a letter addressing the employer stating that he wishes to opt out of the Provident Fund Scheme.
Answer: Hi Darryl, Provided your tax affairs are in order, and you have submitted all the required documents (such as a copy of your ID, a completed instruction form stating where the money should go, and proof of banking details), it normally takes 14 to 21 business days for the funds to be paid out at 10X.
All employees drawing a salary are eligible for EPF. Moreover, it is compulsory for all employees earning less than ₹15,000 to register for the EPF. However, employees earning more than ₹15,000 can also voluntarily stay in the EPF scheme.What is provident fund example? ›
The employee contributes 12 percent of his or her basic salary along with the Dearness Allowance every month to the EPF account. For example: If the basic salary is Rs. 15,000 per month, the employee contribution shall be 12 % of 15000, which comes to Rs 1800/-. This amount is the employee contribution.What are the disadvantages of provident fund? ›
- Transferring a pension fund into a provident fund is not tax-free, and you will be taxed the same as if you had withdrawn.
- You can only touch the money once you have left your employer's fund.
In terms of structure, while gratuity is a lump sum amount, provident fund on the other hand is an investment fund into which both the employee and the employer make contributions which are then invested on behalf of the employee.What is difference between pension and provident fund? ›
A provident fund is the same as a pension fund, but prior to 1 March 2021, it differed in that when you resigned or retired, you could take the entire sum as cash, which you'd be taxed on. You wouldn't need to purchase an annuity.Who is not eligible for Provident Fund? ›
If you are drawing a salary higher than Rs. 15,000 per month, you are termed a non-eligible employee and it is not mandatory for you to become a member of the EPF, although you can still register with the consent of your employer and approval from the Assistant PF Commissioner.What is the minimum Provident Fund? ›
Employer's Contribution towards EPF
The minimum amount of contribution to be made by the employer is set at a rate of 12% of Rs. 15,000 (although they can voluntarily contribute more). This amount equals Rs. 1,800 per month.
To calculate your provident fund contribution, add both employer and employee contributions. The employer contributes 12% towards the PF balance, whereas the employee contributes 3.67% towards the PF balance. The employer's contribution of 12% towards the PF balance depends on the employee's basic pay.Is provident fund a good idea? ›
This makes the PPF Scheme one of the most tax-efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus. Since PPF is a government-sponsored program, it is completely safe to invest in it.Is provident fund Safe? ›
EPF enjoys the EEE (exempt-exempt-exempt) tax regime, which means it is tax free at the three stages of contribution, interest amount accrual and withdrawal. It's a government-backed scheme, which makes it a safe instrument.
If unemployment persists for over 2 months, then it is advisable to withdraw your entire EPF balance. It would be far more fruitful from an investor's perspective to utilise the amount effectively in other savings schemes such as Public Provident Fund (PPF) or National Pension Scheme (NPS).What is the rate of provident fund contribution? ›
Employee contribution to EPF: 12% of salary. Employer contribution to EPF: 3.67% of salary. Employer contribution to EPS: 8.33% of salary subject to a ceiling of Rs. 15,000 salary, i.e.What are the advantages and disadvantages of provident fund? ›
Liquidity: Despite the return the risk and tax benefits are one drawback of the Provident Fund is the lack of liquidity with regards to access to these funds. Money that you invest in Provident Fund cannot be withdrawn until you're unemployed for 2 months or until retirement.What happens to provident fund when you resign? ›
If you resign, or you are retrenched, you are allowed to withdraw from your employer-sponsored retirement fund (that is a pension or provident fund). The "benefit" you can claim is the balance in your retirement account. Once you have withdrawn, you have no other claim against that fund.Why provident fund is mandatory? ›
If you do not choose to contribute to the EPF, you will miss out on this interest on the accumulated provident fund amount. Your contributions to PF are tax-exempt under Section 80C. You will not be eligible to receive the retirement pension under the EPS. You will not receive a lump sum amount upon your retirement.Can I get my provident fund if I get fired? ›
The money in your provident fund, as reflected on your latest benefit statement, belongs to you (even if your employer made all the contributions). It does not matter whether you are resigning, or you are retrenched or dismissed, this money is yours, and you can cash it in or transfer it to another fund.What happens if provident fund is not withdrawn? ›
Even after leaving the establishment a person can continue his membership. However, if no contribution is received into a PF account for 3 consecutive years the account shall not earn any interest after 3 years from the stopping of contribution.Are Provident paying out now? ›
Tens of thousands of PFG customers applied for compensation for being mis-sold loans between April 2007 and December 17 2020. Now the firm's refund arm, the Provident Scheme, is paying out - but only at 4.25% of what customers claimed they were due.Are Provident giving refunds? ›
You can apply for a refund, including the interest you paid if you repaid the Provident loan back within the last six years.How many employees are required for provident fund? ›
Register establishment with EPFO on crossing the eligibility threshold – 20 or more employees of specified establishment types. Other establishments - not statutorily required to register - can register voluntarily. Registration is on-line, free of cost and hassle free. No requirement of visiting EPF office.
A provident fund is a compulsory, government-managed retirement savings scheme used in Singapore, India, and other developing countries. In some ways, these funds resemble a hybrid of the 401(k) plans and Social Security used in the U.S. They also share some traits with employer-provided pension funds.Is provident fund tax free? ›
Employer's contribution to your EPF account is exempt from tax. This exemption is subject to 12% of your basic salary plus DA. The interest on employer's contribution is also exempt from tax. The employee contribution toward EPF is also eligible for tax deduction under section 80C.Is provident fund liability or income? ›
Tax Liability on Provident Fund
If the amount contributed by the employer is more than 12%, it would be taxed under the head 'Income from Salary'. The contribution towards PF can be claimed as a deduction under Section 80C. The maximum deduction that is permitted under Section 80C is Rs. 1,50,000.
Difference Between Provident Fund And Gratuity
A PF account receives contributions from both the employer and the employee. But, on the contrary, the gratuity does not include any contribution from the employee. Instead, the gratuity is a token monetary amount offered to an employee as an appreciation.
A provident fund is now the same as a pension fund, but it wasn't always this way. Before 1 March 2021, you could take the entire contents of your provident fund as a cash withdrawal (subject to tax) when you resigned or retired. Purchasing an annuity using your provident fund was not compulsory.Is gratuity mandatory in Pakistan? ›
In accordance with section 1(4) of the Standing Orders Ordinance, 1968 (and its variant in Punjab), every commercial establishment (employing 20 or more workers) and industrial establishment (employing 50 or more workers) are required to pay gratuity to a worker once he/she has met the minimum criteria.How does a provident fund work? ›
Workers give a portion of their salaries to the provident fund and employers must contribute on behalf of their employees. The money in the fund is then held and managed by the government and eventually withdrawn by retirees or, in certain countries, their surviving families.At what percentage is taken from provident fund? ›
The law does not lay down the maximum allowed deduction for contributions, but the Income Tax Act stipulates that an employer may only deduct contributions for tax purposes up to 20% of the employee's pensionable salary (in respect of both a provident or a pension fund).Who can claim for provident fund? ›
To be eligible for the provident fund deduction, you must have at least one year of service with your employer. If you do not meet this requirement, you will not be able to claim the provident fund deduction.Who is not eligible for provident fund? ›
If you are drawing a salary higher than Rs. 15,000 per month, you are termed a non-eligible employee and it is not mandatory for you to become a member of the EPF, although you can still register with the consent of your employer and approval from the Assistant PF Commissioner.
You need to contact the HR department of each of your former employers and a) find out where your money is; 2) request a withdrawal form if the money is still in the employer's retirement fund; or 3) request the contact details for the administrator who looks after the unclaimed benefit fund if the money has already ...Do provident funds expire? ›
Answer: Zolani, In theory it does not prescribe; however the money will be transferred to an unclaimed benefits fund in due course, and the fund rules may provide that the amount is written back after a set period (although National Treasury wants to prohibit this). However, even then, you can still claim your money.How long does provident take to pay out? ›
Provided your tax affairs are in order, and you have submitted all the required documents (such as a copy of your ID, a completed instruction form stating where the money should go, and proof of banking details), it normally takes 14 to 21 business days for the funds to be paid out at 10X.How do I calculate my provident fund payout? ›
Answer: Kumarasen, You will receive the total value of contributions (net of any administration fees and risk premiums deducted) invested in your fund account plus the investment return (net of any fees) on those contributions. The investment return may be positive or negative.What documents are required for provident fund? ›
Documents Required For EPF Registration
Aadhar Card of Proprietor/Partner/Director. Shop and Establishment Certificate/GST Certificate/ any License issued by the government for the establishment. Digital Signature of the Proprietor/Partner/Director. Cancelled Cheque or Bank Statement of Entity.
A PF account holder can withdraw up to 75% of the total accumulated amount if he/she has been unemployed for more than 1 month after relinquishing employment. This provision also allows the account holder to withdraw the remaining 25% if the unemployment period stretches over 2 months.