TREATMENT OF RETIREMENT BENEFITS

•      Contribution made to Provident fund

•      Gratuity – Section 10(10)

•      Pension- Section 10(10A) & Section 17(1) made to Provident Fund

•      Leave Salary- Section 10(10AA)

TAXABILITY OF CONTRIBUTION MADE TO PROVIDENT FUND

Statutory Provident Fund

Statutory Provident Fund is set up under the Provident Fund Act, 1952. It applies to employees of government, railways, semi-government institutions, local bodies, universities and all recognised educational institutions.

Recognised Provident Fund

Recognised Provident Fund is set up under the Employee's Provident Funds and Miscellaneous Provisions Act, 1952.

Employee's Contribution

Allowed as deduction u/s 80C

Employer's Contribution

Employer's contribution upto 12% of salary is exempt in the hands of the employee. Contribution in excess of 12% is taxable in employee's hands.

Interest on RPF

•      Exempt upto 9.5%. Interest in excess of 9.5% is taxable in the hands of the employee.

•      Interest on employer's contribution in excess of 9.5% is taxable u/h salary. Interest on employee's contribution in excess of 9.5% is taxable u/h other sources.

Withdrawals from RPF

•      If any of the following conditions is satisfied, withdrawal from RPF shall be exempt in the hands of the employee:

Ø  If the employee has rendered continuous service with his employer for a period of 5 years or more;

Ø  If the services of the employee have been terminated before 5 years due to the following reasons:

v  employee's ill health;

v  the employer has contracted/discontinued his business; or

v  any other reason beyond the control of the employee.

Ø  If after termination of his employment, the employee obtains a new employment and the total service with all the employers is 5 years or more and the old employer should transfer the accumulated balance to any RPF maintained by the new employer.

•      If none of the above conditions are satisfied, then the amount shall be taxable in the following manner:

Ø  Employer's Contribution & Interest thereon - Amount not taxed earlier (le 12% contribution & 9.5% interest) shall be taxable in the hands of the employee u/h 'salary

Ø  Employee's Contribution - Not taxable

Ø  Interest on Employee's Contribution - Amount not taxed earlier (ie 9.5% interest) shall be taxable in the hands of the employee u/h 'other sources'.

•      Further, at the time of payment, Tb5 shall be deducted @ 10% u/s 192A if the total payment during the relevant PY exceeds Rs 50,000.

Unrecognised Provident Fund

An Unrecognised Provident Fund is set up under a scheme, which has not been approved by the Income Tax Authorities.