Provident

Fund
6.1 Unrecognized PF
Employee’s contribution to PF is a part and parcel of salary
received by the employee and therefore not separately taxable in
the name of PF.

Employer’s yearly contribution and yearly interest are taxable

when received by the employee.
6.2 Recognized PF
Employee’s contribution to PF is a part and parcel of salary
received by the employee and therefore not separately taxable in
the name of PF.

Accumulated balance is not taxable when received by the

employee.

However, there are limits on Employer’s yearly contribution and

yearly interest credited to PF balance. If the amounts are in
excess of the limits then the excess shall be taxable on yearly
basis.
Limit on Employer’s yearly contribution is the lower of:

 Rs.150,000; or
 10% of (Basic + Dearness Allowance [DA])

Limits on Yearly interest credited to PF balance is the lower

of:

 16% interest rate on accumulated balance; or

 1/3rd of (Basic + DA)
Example:
Basic 960,000
Dearness allowance 96,000
Bonus 300,000
Co’s contribution to RPF 120,000
Less: Rs.150,000 or 10% of
Basic + DA whichever is lower 105,600
14,400
Example:
Basic 960,000
Dearness allowance 96,000
Bonus 300,000
Co’s contribution to RPF 120,000
Less: Rs.150,000 or 10% of
Basic + DA whichever is lower 105,600 14,400

Interest credited @ 18% 432,000

Less: Interest @ 16% 384,000
or 1/3rd of Basic + DA 352,000
whichever is lower 352,000 80,000
Taxable salary 1,450,400
Illustration 2:
Basic 1,800,000
Dearness allowance 180,000

Co’s contribution to RPF 180,000

Less: Rs.150,000 or 10% of
Basic + DA, whichever is lower 150,000
30,000

Interest credited @ 17% 714,000

Less: Interest @ 16% 672,000
or 1/3rd of Basic + DA 660,000
whichever is lower 660,000 54,000
Taxable salary 2,064,000
Withdrawal from PF

Temporary withdrawal: No tax treatment

Permanent withdrawal:
Tax treatment is the same as in case of
amount received from PF on termination
of employment.