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Is Payment Received From Provident Fund or EPF Exempt From Tax?


If an individual contributes to any Employees Provident Fund or EPF which the Provident Fund Act 1925 applies, then the amount received by pay of payment for subscription is completely exempt from Income Tax.


 Is Payment Received From Provident Fund or EPF Exempt From Tax?
What this means is that upon encashment, in case after retirement or in case you are not working then this amount is completely exempted from the payment of Income Tax.

What is Provident Fund?

Provident Fund is nothing but a regular deduction that times place from your salary for the purpose of contribution to the fund. The reason for such a deduction is to create a retirement corpus for an individual.

These days, however, many individuals after changing a job, try and encash the provident fund amount which defeats the purpose of the creating of the fund.

Other finer details of the EPF

An organisation that has more then 20 employees has to provide facility for EPF. An amount of 12 per cent has to be contributed towards EPF, whie the company also contributes to the fund. Generally, these days when the CTC is negotiated, it includes both the company's contribution as well as the contribution of the employee. The amount of contribution towards the EPF is actually the Basic, DA and other allowances that an employee gets.

In many industries like Beedi and Jute the contribution for the employee is slightly less at 10 per cent. There is also a Employees Deposit Linked Insurance Scheme to which a part of the contribution is made payable.

If one retains the allowances for the purpose of contribution to EPF, then the amount of contribution can be higher. But, many companies in the country follow, the basic plus Dearness Allowance rule.

A simple calculation for provident fund

Let's say that you get a basic salary of Rs 10,000 and the dearness allowance on this is another Rs 5000. In case you have transport allowance of Rs 2000, then even that would be added to the figure taking the total amount to Rs 17,000.


So, you then pay a basic a 12% of this sum. Thus the total amount works to Rs 2040, which only makes for your contribution to the provident fund.


As mentioned earlier, the amount received from provident fund contribution is completely exempt from tax. So, in case you wish to contribute more towards the EPF, go ahead, because you can avail tax benefits.In fact, individuals can contribute higher amounts to the EPF.

Read more about: epf
Story first published: Thursday, March 19, 2015, 14:13 [IST]
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