PROVIDENT FUND

Types of Provident Fund

1.Recognized Provident Fund

• All establishments with 20 or more employees are subject to the Provident Fund Act of 1952. The
establishments covered by the scheme have the option of applying for the government-approved
scheme or founding their own Provident Fund trust. The establishments can join the PF (Provident
Fund) Act 1952, which is a recognized provident fund, which is a government-approved system.
• Alternatively, the employer and employee of the organization may form a trust to establish a
provident fund scheme, with funds invested in accordance with the Provident Fund (PF) Act of 1952.
Before it can be labeled as a recognized provident fund, the scheme must be approved by the
commissioner of income tax.
2.PPF (Public Provident Fund)
• For the general population, the government has established a provident fund. By creating a public
provident fund account with an authorised bank, anyone can contribute to this scheme. Amounts
ranging from INR 500 to INR 1,50,000 can be deposited. Following the completion of 15 years, the
PPF (Public Provident Fund) corpus can be entirely withdrawn .
3.Statutory Provident Fund
• The Provident Funds Act of 1925 established this plan. It is intended for
government employees, accredited educational institutions, railways,
universities, and other similar organizations. The General Provident Fund is
another name for Statutory Provident Fund. The government adjusts the
interest rates on General Provident Funds on a regular basis. Employees in
the private sector are not covered by the General Provident Fund (GPF).
4.Unrecognized Provident Fund
• If the commissioner of income tax does not approve the provident fund
program established by the employer and employee (as described in
Recognized Provident Fund), the scheme is considered unrecognized.
Deduction from Salary Income (Section 16)

1.Standard Deduction ;
2.Entertainment Allowance Deduction ; and
3.Professional Tax .

1. Standard Deduction [Sec. 16(i)/(ia)] -

•Standard deduction is Rs. 50,000 ; or
•the Amount of Salary,

whichever is Lower.
2. Entertainment Allowance [Sec. 16(ii)]-

• Entertainment allowance is first included in salary income under the head

“Salaries” and thereafter a deduction is given on the basis :
• (A). In the case of a Government employee (i.e., a Central Government or a State
Government employee), the least of the following is Deductible:
a.Rs. 5,000;
b.20 % of Basic Salary; or
c.Amount of Entertainment Allowance granted during the previous year.
• (B). In the case of a Non-Government Employee (including employees of
Statutory Corporation and Local Authority), :
• Entertainment Allowance is NOT deductible.
3. Professional Tax or Tax on Employment [Sec. 16(iii)] -

• Professional Tax or Tax on Employment, levied by a State under article 276 of the
Constitution, is Allowed as Deduction.
• The following points should be kept in view —
1.Deduction is available only in the year in which professional tax is paid.
2.If the professional tax is paid by the employer on behalf of an employee, it is first
included in the salary of the employee as a “perquisite” and then the same amount
is allowed as deduction on account of “professional tax” from gross salary.
3.There is no monetary ceiling under the Income-tax Act. Under article 276 of the
Constitution, a State Government cannot impose more than Rs. 2,500 per annum
as professional tax. Under the Income-tax Act, whatever professional tax is paid
during the previous year, is deductible.