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Provident Fund

 Provident Fund
Provident fund is a welfare scheme for the benefit of the
employees. Under this scheme, a certain sum is detected by the
employer from the employee’s salary as his contribution to the
Provident Fund every month. The employer also contributes a
certain percentage of the salary of the employee to the provident
fund. The interest earned on these investments is also credited to
the provident fund account of the employees. At the time of
retirement, the accumulated amount is given to the employee, if
certain conditions are satisfied.

Types of Provident Funds

Statutory Provident Fund (SPF)
Public Provident Fund (PPF)
Recognised Provident Fund (RPF)
Unrecognised Provident Fund (URPF)
Statutory Provident Fund (SPF)
Statutory Provident Fund is set up under the Provident Fund Act,
1925. They are also known as Government Provident Funds. So
employees who work for these institutions would be qualified to
give to them.

Public Provident Fund (PPF)

Public Provident Fund is a scheme, which is covered under Public
Provident Fund Act, 1968. Any member of the public, whether in
employment or not, may contribute to this fund. Therefore, even
self-employed persons may contribute to this fund. The minimum
contribution to this Fund is Rs.500 and maximum Rs.1,50,000 per
year. The contributions made to the scheme along with the
interests are repayable after 15 years unless extended. The rate of
interest, at present, under the scheme is 8% per annum.

Recognised Provident Fund (RPF)

Recognised Provident Fund scheme is a scheme to which the
Employee’s Provident Funds and Miscellaneous Provisions Act,
1952 applies. According to this Act, any person who employs 20 or
more employees, is under an obligation to register himself under
the PF Act, 1952 and start a provident fund scheme for the
employees in his organization. However, there is no restriction if
the employer and the employees of such establishment wish to
start a scheme even if the number of employees is less than 20.
The establishment has a choice between the following two
alternatives,

They may join the government scheme set up by the

Provident Fund Commissioner under the Provident Fund Act,
1952.
They may start a PF scheme in their own organization and
get the approval of the Provident Fund Commissioner.
The Government scheme is already recognized by the
Commissioner of Income Tax but for the second scheme started by
the employer and the employees themselves, they have to create a
trust for running such scheme and besides taking the approval
from the Commissioner of Income-Tax. In these case, the funds of
the trust and required to be invested in a particular manner and
the income of the Trust is to be claimed as exempt from income-
tax. If the CIT grants the approval, it is called a recognized
provident fund scheme.
Unrecognised Provident Fund (URPF)
A scheme started by the employer and the employees in an
establishment, whether approved by the commissioner of Income
Tax is called an unrecognized provident fund.

Know more about Types of Provident Fund.

(https://www.indiafilings.com/learn/types-of-provident-
fund/)

PF Contribution Rate
PF contribution paid by the employer and employee is 12% of
(basic salary + dearness allowance + retaining allowance). Equal
contribution is payable by the employee and employer. In case of
establishments which employs less than 20 employees or meet
certain other conditions, as per the EPFO rules, the contribution
rate for both employee and the employer is restricted to 10%. For
most employees working in the private sector, it’s the basic salary
on which the contribution is calculated.

It is necessary that employees’ drawing less than Rs 15,000 per

month, to become members of the EPF. As per the guidelines in
EPF, employee, whose ‘basic pay’ is more than Rs. 15,000 per
month, at the time of joining, is not required to make PF
contributions. However, an employee who is drawing a pay of more
than Rs 15,000 can still become a member and make PF
contributions, with the consent of the Employer and Assistant PF
Commissioner.

To obtain ESI or PF registration

(https://www.indiafilings.com/esi-registration), visit
IndiaFilings.

Other Related Guides

Provident Fund for the Unorganized Workers
(https://www.indiafilings.com/learn/saspfuw/)
Provident Fund for the Unorganized Workers
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Scheme of Provident Fund for the Unorganized Workers
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