FREQUENTLY ASKED QUESTIONS ON PROVIDENT FUND

Q1) What is the Contribution for Provident Fund both by the Employer & Employee ? Ans : The Employee contributes 12% of his /her Basic Salary & the same amount is contributed by the Employer. Q2) Is it Compulsory for the all the employees to contribute to the Provident Fund ? Ans : Employees drawing basic salary upto Rs 6500/- have to compulsory contribute to the Provident fund and employees drawing above Rs 6501/have an option to become member of the Provident Fund . Q3) Is it beneficial for employees who draw salary above Rs 6501/- to become member of Provident Fund ? Ans Yes because provident fund contribution by the employer & employee is not a taxable income for Income Tax purpose. Q4) What if an employee while joining establishment has a basic salary of Rs 4200 and after some period of time his basic salary increases above Rs 6501/-, does he have an option to terminate his member ship form the Provident fund act? Ans : Employee who while joining the organisation has a basic salary above Rs 6501/- have an option to either become or avoid becoming member of Provident fund but employees whose basic salary while joining the organisation is less then Rs 6501/- but after some period of time their basic increases above Rs 6501/- have to compulsorily continue to be member of provident Fund. Q5) What is the contribution percentage to the Provident fund and Pension Scheme ? Ans : Employers contribution of 12% of basic salary is totally deposited in provident fund account Whereas out of Employees contribution of 12% , 3.67% is contributed to Provident fund and 8.33% is deposited in Pension scheme. Q6) Which form has to be filled while becoming member of provident fund ? Ans : Nomination Form No 2 has to be filled to become a member of the Provident fund, form is available with HR department . Q7 ) Which form has to be filled while transferring provident fund deposit ?

Ans : You just have to fill form no 13 to transfer your P.F amount. Q8 ) What is the provision of the scheme in the matter of nomination by a member ? Ans : Each member has to make a nomination to receive the amount standing to his credit in the fund in the event of his death. If he has a family, he has to nominate one or more person belonging to his family and none other. If he has no family he can nominate any person or persons of his choice but if he subsequently acquires family, such nomination becomes invalid and he will have to make a fresh nomination of one or more persons belonging to his family. You cannot make your brother your nominee as per the Acts. Q9 ) When is an employee eligible to enjoy pension scheme ? Ans : For an employee to become eligible for Pension fund, he has to complete membership of the Fund for 10 Years. Q10 ) What does it mean by continuous service of ten years ? Ans : When we say continuous service of 10 years in Employee Pension Fund, we mean to say that during services, for e.g., an employee who has worked with X company for say 3 years, then he resigned from that organisation and joined Y company, wherein he worked for 2 years, then resigned from there to join establishment for 5 years but during these 10 years of service he has not withdrawn but transferred his Employee pension fund, then we say continuous service of ten years. Q11 ) When can an employee avail the benefit of Employee pension fund scheme which he has contributed during his ten years of continues service? Ans : An employee can avail the benefit after completion of 58 years of service. Q12 ) What happens to the provident fund & Employee Pension fund if an employee who wants to resign from the service before completion of ten years of continues service? Ans : Employee can withdraw the PF accumulations by filling Forms 19 & 10 C which is available with the HR department. Q13 ) What is this 19 & 10C form ? Ans : Form No 19 is for Provident fund withdrawal & Form No. 10 C is for Pension scheme withdrawal. Q14 ) Do we get any interest on the amount which is deposited in the Provident Fund account?

Ans : Compound interest as declared by the Govt. is given for every year of service. Q15 ) What is the accounting year for Provident fund account? Ans : Accounting year is from March to February. Q16 ) What are the benefits provided under Employee Provident Fund Scheme?Ans : Two kinds of benefits are provided under the schemea) Withdrawal benefitb) Benefit of non -Refundable advancesQ18 ) What is the purpose of the Employee's Pension Scheme ? Ans : The purpose of the scheme is to provide for1) Superannuation pension.2) Retiring Pension.3) Permanent Total disablement PensionSuperannuation Pension: Member who has rendered eligible service of 20 years and retires on attaining the age of 58 years.Retirement Pension: member who has rendered eligible service of 20 years and retires or otherwise ceases to be in employment before attaining the age of 58 years.Short service Pension: Member has to render eligible service of 10 years and more but less than 20 years. Q19 ) How much time does it take to receive P.F & pension money if an employee resigns from the Service? Ans : Normally the procedure for receiving P.F & Pension money is , the employee has to fill 19 & 10 c Form and submit the same to PF Desk , which is then submitted to the P.F office after two months, this two months is nothing but a waiting period as the rules are that an employee should not be in employment for two months after resigning if he has to withdraw his P.F amount. After completion of two months the form is submitted to the regional provident fund Commissioner office after which the employee receives his amount along with interest within a period of 90 days. Q20 ) Do we receive money through postal order ? Ans Previously there was a procedure wherein member use to get P.F through Postal order but now While submitting the P.F form withdrawal form you have to mention your saving Bank account No. & the complete address of the Bank where you hold the account. Q21 ) How would I know the amount of accumulations in my PF account ? Ans : PF office sends an annual statement through the employer which gives details about the PF accumulations. The statement contains details like, Opening balance, amount contributed during the year, withdrawal during the year, interest earned and the closing balance in the PF account. This statement is sent by the PF department on completion of the financial year.

Q22 ) Which establishments are covered by the Act ? Ans : Any establishment which employs 20 or more employees. Except apprentice and casual laborers, every Employee including contract labour who is in receipt of basic salary up to Rs. 6500 p.m. is covered by the Act. Q23 ) In case after registering the establishment at any point in time, the number of employees working in it becomes less than 20 then will the Act apply ? Ans : Any establishment which has been covered under the Act once shall continue to be governed by the Act even if the number of persons employed therein at any time falls below 20. Q24 ) Is the Act applicable to a factory which is closed down but is employing a few employees to look after the assets of the establishment ? Ans : No, Where the establishment is closed down and only four security men are employed for keeping a watch over the assets and properties of the establishments, the Act would not be applicable. Q25 ) Is a trainee an employee under the Act ? Ans : Yes, a trainee would be considered as an employee as per the Act but in case the trainee is an apprentice under the Apprentice's Act then he/ she will not be considered as an employee under this Act. Q26) Is it possible to appeal the orders of the Central Government or the Central Provident Fund Commissioner ? Ans : Yes, there is a body called as Provident Fund Appellate Tribunal where an employer can appeal. Q27 ) Who is the authority to decide regarding the disputes if any ? Ans : In case there is a dispute regarding the applicability of the Act or the quantum of money to be deducted etc. the authority to decide are the i)Central Provident Fund Commissioner,ii)any Additional Provident Fund Commissioner, iii)any Additional Central Provident Fund Commissioner iv)any Deputy Provident Fund Commissioner v)any Regional Provident Fund Commissioner orvi)any Assistant Provident Fund Commissioner Q28 ) What in case there are workers involved as Contract labour ? Ans : It is the responsibility of the Contractor to deduct the PF and submit a statement to the Principal Employer in the prescribed format by 7th of every month. The Company becomes the Principal Employer would be responsible for the PF deduction of the workers employed on contract basis.

Q29 ) Are the persons employed by or through a contractor covered under the Scheme ? Ans : Persons employed by or through a contractor are included in the definition of " employee " under the Employee's Provident Finds Act, 1952, and as such, they are covered under the Scheme.

Q30 ) In case the Contractor fails to deduct and submit the PF amount from the contract workers then what is to be done ? Ans : The Company being the Principal employer is responsible for the PF to be deducted from the Contract workers as well. In case the Contractors fails to deduct and submit the PF dues then the Company has to pay the amount and can later on recover the amount from the Contractor. Q31 ) Could the employer be punished in case the remittance of contribution by him is delayed in a Bank or post office ? Ans : Employer cannot be punished or penalized in case there is a delay in the remittance of the contribution on account of delay in Bank or post office. Q32 ) What happens in case there is a salary revision and a raise in the basic salary of the employee and arrears need to be paid, Do we need to deduct PF from the arrears as well ? Ans : Arrears are considered to be emoluments earned by the employee and PF is to be deducted from such arrears. Q33 ) Is it possible for an employee to contribute at a higher rate of interest than 12 % ? Ans : Yes, if an employee desires to contribute an amount at a higher rate of interest than 12 % of basic salary then they can do so but it does not become obligatory for the employer to pay anything above than 12 %.This is called voluntary contribution and a Joint Declaration Form needs to be filled up where the employer and the employee both have to give a declaration as to the rate at which PF would be deducted. Q34 ) What is the interest on the PF accumulations ? Ans : Compound interest as declared by Central Govt. is paid on the amount standing to the credit of an employee as on 1st April every year.

have changed job and new employer has opened new PF account. I have a choice of withdrawing old PF amt or transferring to new. If I withdraw PF, will it be treated as taxable income? If yes, can I save tax by investing partially in any government schemes / bonds? Here is the response. PF withdrawal is taxable if a person has worked in the company for less than 5 years. Tax cannot be saved even by investing in any govt schemes / bonds. It just gets added to income from salaries, and then the taxability will depend upon the Gross Income of the assessee.

Head Employers contribution to PF Deduction under sec 80C Interest credited on PF account Lump sum payment received at the time of retirement or termination of service

Statutory PF Recognized PF

UnRecognised PF

Exempt from Exempt up to 12% of salary (Basic Exempt from tax tax +DA) Available Available Not available Exempt from Exempt up to 9.5% tax Exempt from Exempt from tax: tax Exempt from tax Only employees share of contribution is exempt

a. If the employee has worked for at least 5 years with the employer b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employers business or any other reason beyond control of employee c. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer Any thoughts on this has anyone done this

Tax Deductions FAQs

Tax Deductions
A deduction is an item that allows you to take a tax benefit up to the entire amount of the deduction. The good news is that this reduces your taxable income by the amount of the deduction, i.e., by using the deduction you end up paying a lesser amount in taxes. Just as an illustration, lets take the following simple mathematical example. Amits income is Rs.100 Amits eligible deduction is Rs.20 Therefore, Amits taxable income is Rs.80 If Amit did not have a deduction, then his taxable income would have been Rs.100 By using the deduction Amit has saved taxes on up to Rs.20

What are the most commonly available deductions? There are 4 most commonly used deductions that most people can avail of. These are popularly known by the section of the Income Tax Act under which they appear. Click on each of them to get more details. 80C deduction: Up to Rs.1 lakh, and used towards certain investments, payment of insurance premium, repayment of home loan principal amount, provident fund etc. 80D deduction: Up to Rs.15,000, and used towards annual medical expenses 80E deduction: Deduction of entire amount of interest paid on higher education loan for any family member 80G deduction: Deduction for contribution to charitable organization In addition to these, there are numerous other deductions that are less common or that might not usually apply to you. Please check with your tax advisor if you might be eligible for any other deductions.

80C Deduction:Check out the eligible instruments

This allows a deduction for specific investment, contribution, deposits or payments made by the taxpayer during the tax year.

Who is it available to?

All individuals and HUF (Hindu Undivided Family).

What is the amount of the deduction?

A total of Rs.1 lakh in aggregate across all eligible 80C instruments.

What are the eligible instruments?

The most commonly used eligible instruments towards the 80C deductions are:

Life insurance premium, including premium for a unit-linked insurance plan (ULIP) Contribution to Public Provident Fund or Provident Fund Investment in pension plans Investment in Equity Linked Savings Schemes (ELSS) of mutual funds Home loan principal repayment Investment in Infrastructure Bonds, National Savings Certificates Payment of tuition fees to for full-time education of any 2 children of an individual Fixed deposit with any scheduled bank or post office for 5 years Senior citizens savings scheme

Please check with your tax advisor in case from time to time there are other instruments that become eligible under 80C.

80E Deduction:Check out the eligible instruments

This allows a deduction for payment of interest of loan taken towards higher education.

Who is it available to?

The deduction can be taken by the taxpayer for his/her higher education loan or for any member of the taxpayers family. The amount must have been paid using the taxpayers income chargeable to tax.

What is the amount of the deduction?

The entire payment of interest is deductible. The deduction is available for a maximum period of 8 years or till the principal and interest amount have been repaid, whichever comes earlier.

What are the eligible instruments?

The 80E deduction is usable only in the case of loan taken for higher education from a financial institution or recognized charitable institution. In this context, higher education means full-time studies for any graduate or post-graduate course specifically in engineering, medicine, management, applied sciences, mathematics or statistics. Please make yourself familiar with whether your course and subject of study are eligible for this deduction. Please check with your tax advisor in case from time to time there are changes to the amount of deduction under 80E and the types of education loans permitted.

80G Deduction:Check out the eligible instruments

This allows a deduction for donations made to recognized charities and charitable institutions.
Who is it available to?

The deduction can be taken by any individual, HUF (Hindu Undivided Family), firm or company. Please note that donations made in kind are ineligible for the deduction.
What is the amount of the deduction?

The deduction available is 100% of the amount contributed to the charity, or in some cases 50% of the amount, which may further be with or without restriction. This calculation can get a little complicated, so its best if you ask your tax advisor on the total amount that you will be eligible for. Also, different charities get treated differently, so best to seek professional advice on this matter depending upon the charity of your choice.
What are the eligible charities and charitable institutions where my donations are eligible for the deduction?

Common charities that are eligible for this deduction are the Prime Ministers National Relief Fund, Prime Ministers Drought Relief Fund. Before making a donation, please check with the charity if it is recognized and has been registered with the appropriate authorities. If you make a donation to a notified temple, mosque, gurudwara or church, it might also be eligible but please confirm that this place of worship has been registered with the authorities. As mentioned above, donations made in kind are ineligible for the deduction, so make sure that you pay by cheque or bank draft and keep record of the transaction. Please check with your tax advisor in case from time to time there are newer charitable institutions that become available or there are changes to the amount of deduction under 80G.

Less Commonly Used Tax Deductions

Under section 80 of the Income Tax Act, there are other less commonly used deductions. Please check with your tax advisor on how to use them, if you are eligible for these

Top Misconceptions about Taxes

Do I need to file my tax returns? How do I file them?
Misconception 1:

My employer has deducted tax at source from my paycheck and thus I dont have to worry about filing tax returns. Just because taxes have been paid on your behalf does not mean that filing a tax return is not required. If your combined annual income from all sources is above the amount that is exempt from income tax you are required to file your returns. Your employer gives to you a statement called Form 16 at the end of the financial year that shows the amount of tax that has been

deducted at source. You will need to put the tax deduction amount shown on the Form 16 on your tax return form. Therefore, it is important to ensure that you obtain this statement from your employer on time.

Misconception 2:

Filing tax returns is a complex and cumbersome process. I need a Chartered Accountant to help me file my tax returns. Contrary to popular belief preparing and filing a tax return is actually quite simple. In fact if you have a digital signature you can accomplish the entire process sitting at home on your computer thanks to the e-filing facility available on the tax department website (www.incometaxindiaefiling.gov.in). Alternatively, you can submit the returns online, print a one-page receipt, sign it and drop it off at the income tax office within fifteen days of submitting the returns. No documents are required to be submitted with the receipt. If you so desire, you can fill out the forms on your own. However, if you want professional help there are many third party service providers who offer tax preparation and filing services for as low as Rs.200.

Housing and tax

Misconception 3:

he interest I pay on a home loan is deductible from my income from house property up to a maximum of Rs. 1,50,000 per year. This is true if you have taken a home loan for a single house and it is selfoccupied. However, if you take a home loan on a second house, the entire interest paid on the loan can be claimed as a deduction from your income on house property. If you are planning to invest in real estate with the expectation that the property would appreciate in value over time, you could take advantage of the above rule. Thus a smart investment strategy would be to take a home loan on a second house, rent out the house and claim interest paid on the loan as a deduction from the rental income, thereby reducing your borrowing costs significantly.

Misconception 4:

I receive tax exemption on the actual rent I pay for my rented home. This is not entirely accurate. Section 13 A of the Income Tax Act states that the maximum amount that is exempt from tax is the lower of the following amounts: (i) the House Rent Allowance given by the employer, (ii) 50% of your basic salary if you live in a metro, (iii) or, actual rent paid minus 10% of your basic salary. Thus if actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.

The magical 80s

Misconception 5:

Section 80C benefits are available only on making an investment or saving or paying a premium on insurance. You can claim a deduction for the school or university tuition fees you pay for your children (maximum of two) as long as they are enrolled in a full time program at any institute in India. In addition you can claim a deduction for the repayment of principal on any home loan that you may have taken. Both these deductions have to of course be within the overall annual Section 80C cap of Rs.1lakh.

Misconception 6:

If I avail of tax free medical reimbursement from my employer up to Rs.15,000, I cannot claim deduction on health insurance premium paid. Tax free medical reimbursement by your employer up to an amount of Rs.15,000 per year for your familys medical expenditure is separate from the Rs.15,000 deduction available under Section 80D for the premium you pay on buying health insurance. Both these exemptions are covered under different sections of the Income Tax Act and you can enjoy benefits from both. The former covers costs for your daily medical needs and outpatient treatment (OPD), while the latter protects you from expenditure for hospitalization.

Misconception 7:

My friends tell me that the only interest payment I can claim an exemption for is the interest paid on home loans. There is a section of the Income Tax Act called 80E that permits deduction on interest paid on loans taken for higher education for self, spouse and children. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the program for which the loan is taken should be a graduate or post-graduate program in engineering, medicine or management or a post-graduate course in the pure or applied sciences.

Interest income and others

Misconception 8:

Interest I earn on my savings account balance is exempt from income tax.After the removal of Section 80L of the Income Tax Act, interest income from any source including savings account balance, is subject to income tax. What you may be referring to is the rule around tax deducted at source for the interest payments you receive on your savings account. As per existing rules, as long as the combined interest income that you earn, on any savings accounts or fixed deposits, at a single bank branch, is less than Rs.10,000 there will be no tax deducted at source. If you want to better manage your cash flow and do not want tax to be deducted at source you could consider spreading your deposits across multiple bank branches, even if they are of the same banking company.

Misconception 9:

I have to pay taxes on interest received from my fixed deposits only on maturity. Your tax liability on interest income from your fixed deposit is calculated on an accrual basis. Lets say that you have made a fixed deposit for three years and have elected not to receive any regular interest payouts and instead have decided to receive a lump sum payout on maturity after three years. That does not mean that you are not liable to pay income tax annually on the interest that is credited to your fixed deposit account every year, even though you do not have access to that interest income.

Misconception 10:

I received cash as a gift from a close friend. I do not have to pay any tax. You are right as long as the amount was less than Rs.50,000 during the financial year. The applicable rules for gift tax state that any cash gifts, without any upper limit, received from specified relatives are exempt from income tax. However, if you receive a cash gift from a friend, which exceeds Rs.50,000 in one financial year, you are liable to pay income tax on the entire amount. However, the good news is that cash gifts received during your marriage, of any amount, and from anyone are totally free from income tax.