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Payment from Public Provident Fund is exempt from tax as per notification No. 2430 dated 02-07-1968). See all about Public Provide Fund article.
2) Payment received in respect of emplyee’s own contribution is exempt from tax and interest on employee’s contribution is taxable under the head ‘Income from other
sources. Balance is taxable under the head salaries. However, relief can be claimed.
3) Under section 10(12), the accumulated balance due to an employee participating in a recognised provident fund is exempt to the extent indicated under Rule 8 of Part
A of the Fourth Schedule to the Act. This rule specifies that to avail the exemption.
♣ the employee should have rendered continuous service with his employer for 5 years or more; or
♣ if he has not rendered such service, it should have been terminated by reasons beyond his control; or
♣ if he has found another employment, the balance due to him should have been transferred to his account in the recognised provident fund of the new
employer.
In so far as the employer’s annual contribution to such a fund is concerned, it shall be deemed to be income and taxed under the head “salaries” in the hands of
theemployee.
♣ if interest paid on the balance to the credit of the employee exceeds the rate notified by the Central Government. The Government had fixed the rate of
interest at 12% w.e.f. 1.4.1986 for the purpose of this provision.
The employee’s own contributions to the extent of one-fifth of salary are eligible for tax relief u/s 88 with effect from the assessment year 1991-92 without any limit as to
the amount of contribution. For these purposes (both for purposes of theemployee’s as well as the employer’s contribution), the term ’salary’ includes dearness allowance
if the conditions of service so provide but excludes all other allowances and perquisites.