Difference Recognised Provident Fund and Unrecognised Provident Fund

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Difference between Recognised Provident Fund and Unrecognised Provident Fund

Recognised Provident Fund:

A provident fund scheme to which the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952 applies is recognized provident fund.

In this regard provisions are as follows:

1. Contribution of employer is exempt up to 12% of salary (i.e. basic and dearness allowance if under terms of employment and commission on fixed % of turnover) thereafter, any excess is taxable.

2. Interest credited to the RPF is exempt up to 9.5% p.a. excess interest credited over 9.5% is taxable.

3. Exemption U/s 80C is available to employee on his contribution.

4. The accumulated balance due and becoming payable to an employee participating in a RPF will be excluded from total income in the following situations:

(i) In the case of an employee who has rendered continuous service with his employer for a period of 5 years or more.

(ii) In case of an employee whose service has been terminated by reason of the employee’s ill health or by the contraction or discontiuance of the employer’s business or other cause beyond the control of the employee.

(iii) In case of an employee who transferred his balance from one employer to other, total period will be considered for calculating the period of continuous service.

Unrecoznised Provident Fund.

1. In salary income of the person contributions made by employer are not added.

2. Interest credited to the fund is also exempt at the time of credit.

3. No exemption U/s 80C is available to the employee.

4. On retirement etc. payment received which represent employee’s own contribution is exempt. Interest received on employee’s contribution is taxable under income from other sources’. Balance (employer’s contribution and interest thereon) is taxable under the head salaries.

Difference between Recognised Provident Fund and Unrecognised Provident Fund

SI. No.	Basis	Recognised Provident Fund	Unrecognised Provident Fund
1.	Employees contribution to Provident Fund.	Exempt from tax upto 12% of salary.	Exempt from tax.
2.	Deduction U/s 80C on employees’ contribution.	Available.	Not available.
3.	Interest credited to Fund.	Exempt from tax if rate of interest does not exceed notified rate of interest [i.e. 9.5%].	Exempt from tax.
4.	Lumpsum payment at the time of retirement or termination of service.	Exempt from tax in some cases.	Payment received in respect of employees’ own contribution is exempt from tax.Interest on employees’ contribution is taxable under the head IFOS, and employers contribution and interest thereon is taxable as ‘salaries’.

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