The applicability of Income Tax on Provident Fund (PF) in India depends on the type of PF, the contribution, interest earned, and withdrawal conditions. Here’s a clear breakdown:
🧾 1. Types of Provident Funds
- Statutory Provident Fund (SPF)
- Applicable to government, railways, universities, and recognized educational institutions.
- Recognized Provident Fund (RPF)
- Maintained by private employers and recognized by the Commissioner of Income Tax.
- Unrecognized Provident Fund (URPF)
- Not approved by the Commissioner of Income Tax.
- Public Provident Fund (PPF)
- Voluntary savings scheme managed by the government.
📊 2. Taxability Chart at a Glance
| Component | SPF | RPF | URPF | PPF |
|---|---|---|---|---|
| Employee’s Contribution | No tax | Eligible for 80C deduction | No 80C benefit | Eligible for 80C |
| Employer’s Contribution | Exempt | Exempt up to 12% of salary | Fully taxable | Not applicable |
| Interest on PF | Exempt | Exempt up to 9.5% p.a. | Interest on employer part taxable | Exempt |
| Withdrawal (after 5 years) | Exempt | Exempt if 5 years continuous | Partially taxable | Exempt |
💡 Key Points to Remember
A. Tax on Interest from FY 2021-22 onwards
- If employee contribution exceeds ₹2.5 lakh in a year (₹5 lakh if there is no employer contribution), interest on the excess contribution is taxable under “Income from Other Sources”.
B. Withdrawal before 5 years (RPF)
- If you withdraw before 5 years of continuous service:
- Employer’s contribution and interest thereon becomes taxable.
- Employee’s own contribution: not taxable, but deduction claimed earlier under section 80C is reversed.
- Interest on employee contribution: taxable as Income from Other Sources.
- TDS @ 10% is applicable if withdrawal exceeds ₹50,000.
C. Public Provident Fund (PPF)
- Completely tax-exempt under EEE regime (Exempt on Contribution, Interest, and Withdrawal).
- Contribution limit: ₹1.5 lakh per year, eligible for 80C deduction.
✅ Tax Planning Tips
- To keep interest fully exempt, avoid contributing more than ₹2.5 lakh annually to EPF.
- Prefer PPF or VPF for long-term tax-free savings.
- Always ensure 5 years of continuous service to avoid tax on RPF withdrawals.