PROVIDENT FUND

Employee Provident Fund is a retirement benefit applicable

only to salaried employees. It is a fund to which both the
employee and employer contribute 12 per cent of the former's
basic salary amount each month. This percentage is pre-set by
the government. The contribution which is payable by the
employer to the Provident Fund of the employee is set at 12 %
( twelve percent) of basic salary, dearness allowances and
retaining allowance. The employer contributes at the rate of
12% of Basic component of the salary to the Provident Fund.
However, contribution by employer is bifurcated into
contribution to Provident Fund and contribution to Employees
Pension Scheme. A sum equal to 8.33% of Basic Salary up to
Rs.6500/- is contributed to Pension Scheme from employers
share of contribution. The maximum amount that will go to
Pension Fund is Rs.541/- per month. i.e. 8.33% of Rs.6500/(Rs 541.45). E.g.: On a basic salary of Rs 10000/-, 12% (Rs
1200/-) contribution by employer would be contributed in the
following manner: Rs 541/- would go to Pension Fund & Rs
659/- would go to Provident Fund. EPF accounts will now
yield a return of 8.75 per cent annually. In EPF, the amount is
paid at the time of retirement or resignation, whichever occurs
earlier. In the case of a change of ones job, the amount can be
transferred from the old company to the new one. Loans can
be taken by individuals on their EPF Account, for their
personal needs by submitting a list of required documents.
Additionally, the amount invested in an Employees Provident
Fund is exempt from tax under Section 80C of the Income Tax
Act. Withdrawal from an EPF is subject to tax if it is carried

out within 5 years of employment with the same employer.

Salaried income tax employees are eligible for deduction
under section 80C on the total amount that is expected to be
deducted towards EPF during the financial year. The total
amount deducted from the employees salary will be eligible
for tax deduction under Section 80C. For Example, if an
employees gross salary is INR 50,000 pm and Basic Salary is
INR 20,000 on which Provident Fund deductions are INR
2,400(12% of INR 20,000).Since income tax is levied on
Gross salary, the salaried employee should deduct Income Tax
on INR 50,000, but the employer deducts only on INR 47,600
(INR 50,000-2400) since salaried Employees Provident Fund
amount is exempted from Income Tax; since it is a retirement
benefit. But when the salaried employee withdraws before
retirement that will be considered as normal income, hence
TDS (Tax Deducted at Source) will be applicable on the
withdrawal. In case the salaried employee does not fall under
a 30% Income Tax slab, he can claim back the TDS amount
from the IT department by submitting his Income Tax returns
with the help of TDS certificate(as issued by the PF trust) and
Form-16. Salaried individuals, who have the option of
contributing in EPF schemes, should ensure their contribution
to the fullest extent to have these benefits to accrue to them.
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