Provident Fund

Provident fund is a welfare scheme for the benefit of the employees. Under this scheme, a certain sum is detected by the employer from the employee’s salary as his contribution to the Provident Fund every month. The employer also contributes a certain percentage of the salary of the employee to the provident fund. The interest earned on these investments is also credited to the provident fund account of the employees. At the time of retirement, the accumulated amount is given to the employee, if certain conditions are satisfied.


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Types of Provident Funds:

1. Statutory Provident Fund (SPF)

2. Public Provident Fund (PPF)

3. Recognised Provident Fund (RPF)

4. Unrecognised Provident Fund (URPF)


Statutory Provident Fund (SPF)


Statutory Provident Fund is set up under the Provident Fund Act, 1925. They are also known as Government Provident Funds. So employees who work for these institutions would be qualified to give to them.


Public Provident Fund (PPF)


Public Provident Fund is a scheme, which is covered under Public Provident Fund Act, 1968. Any member of the public, whether in employment or not, may contribute to this fund. Therefore, even self-employed persons may contribute to this fund. The minimum contribution to this Fund is Rs.500 and maximum Rs.1,50,000 per year. The contributions made to the scheme along with the interests are repayable after 15 years unless extended.


Recognised Provident Fund (RPF)


Recognised Provident Fund scheme is a scheme to which the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952 applies. According to this Act, any person who employs 20 or more employees, is under an obligation to register himself under the PF Act, 1952 and start a provident fund scheme for the employees in his organization. However, there is no restriction if the employer and the employees of such establishment wish to start a scheme even if the number of employees is less than 20. The establishment has a choice between the following two alternatives,


1. They may join the government scheme set up by the Provident Fund Commissioner under the Provident Fund Act, 1952.


2. They may start a PF scheme in their own organization and get the approval of the Provident Fund Commissioner.


The Government scheme is already recognized by the Commissioner of Income Tax but for the second scheme started by the employer and the employees themselves, they have to create a trust for running such scheme and besides taking the approval from the Commissioner of Income-Tax. In these case, the funds of the trust and required to be invested in a particular manner and the income of the Trust is to be claimed as exempt from income-tax. If the CIT grants the approval, it is called a recognized provident fund scheme.


Unrecognized Provident Fund


The provident fund that is not recognized by Commissioner of Income Tax is known as an unrecognized provident fund.

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