Tag Archives: Income tax

know All About Provident Funds

Under Income Tax Act, 1961, contribution by employer and employee to the provident fund account enjoys certain tax benefits and some are taxable as well.
Provident Funds provides a compulsory contribution for the future of an employee after his retirement or for his dependents in case of his early death. In such fund employee and employer contribute equally. There are many provident funds in which the contribution can be made and the taxability of the same depends upon the type of provident fund in which the contribution is made.


Basically, there are three types of Provident Fund Schemes provided by the employer, namely Statutory provident fund, Recognised provident fund and Unrecognised provident fund.
However, an employee may also contribute to the Public Provident Fund scheme.
Statutory provident fund-
This fund is set up under the provisions of the Provident Fund Act, 1925. This fund is maintained by Government and Semi-Government organizations, local authorities, railways universities and recognized educational institutions.
Taxability as per the Income Tax Act, 1961:
•         Employer’s contribution to provident fund – Exempt
•         Deduction under Section 80C – Available for employee’s own contribution
•         Interest credited to provident fund – Exempt
•         Payment at retirement or termination of service – Exempt
Recognized Provident Fund –
This fund is one which is recognized by the Commissioner of Income tax in accordance with the rules contained there in the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. According to this Act, any organization, which employs 20 or more persons, is obligated to register under the Act and start a PF scheme for the employees in the organisation.
Taxability as per the Income Tax Act, 1961:
•         Employer’s contribution to provident fund – Exempt up to 12% of salary – excess is taxable
•         Deduction under Section 80C – Available for employee’s own contribution
•         Interest credited to provident fund – Exempt up to notified rate (now 9.5%)
•         Payment at retirement – Taxable except in following under mentioned circumstances
The employee should have rendered continious service with his employer for 5 years or more; or if not so, he should have been terminated due to ill health, due to discontinuation of employer’s business or by reason beyond his control. If he has found another employment, the balance due to him should have been transferred to his account in the recognised provident fund of the new employer.
Unrecognized Provident Fund –
Unrecognized provident fund is the provident fund which is neither a statutory provident fund nor a recognized fund. This scheme is started by an employer which is not approved by the Commissioner of Income Tax.
Taxability as per the Income Tax Act, 1961:
•         Employer’s contribution to provident fund – Exempt from tax
•         Deduction under Section 80C – Not Available
•         Interest credited to provident fund – Exempt
•         Payment at retirement – Employee’s own contribution is exempt but interest on his own contribution is taxable under the head “income from other sources”.

Payment received towards the employer’s contribution and interest thereon is taxable under the head “Salaries”.Image


A new section has been introduced in Budget 2013. It provides that while computing the total income of an assessee, being an individual there shall be deducted interest payable on loan taken by him from any financial institution for the purpose of acquisition of residential house property. This section allows for Additional deduction of Rs. 1 Lakhs for the Assessment year 2014-15 (FY 2013-14).
Deduction under this section shall be subject to the following conditions:-
• The value of house property does not exceed Rs.40 Lakhs.
• The assessee does not own any other house property on the date of sanction of loan.
• Loan must be from eligible financial institutions.
• Loan is sanctioned during the period beginning from 1st April, 2013 and ending on 31st March, 2014.
• Loan sanctioned does not exceed Rs. 25 Lakhs.
• Assessee is a first time buyer of House Property.
It is also provided that where a deduction under this section is allowed for any assessment year in respect of interest, deduction shall not be allowed in respect of such interest under any other provisions of the Income Tax Act for the same or any other Assessment year.
The Financial institution providing loan must be either a Bank or a Public company formed with the main object of providing long term Housing Finance.
Note:- Deduction will be allowed only if loan is taken from Public company.
Deduction u/s. 80EE will be over and above the deduction of Rs. 1,50,000 allowed for self occupied properties under section 24 of the Income Tax Act.
This scheme is for one year only. In case where the interest payable for the previous year relevant to assessment year is less than one lakh rupees then balance can be claimed in AY 2015-16 i.e. FY 2014-15.


Salary earners upto Rs 5 lakh need to file IT return: CBDT

Salaried with total income upto Rs. 5 lakh also to FIle IT return for A.Y. 2013-14.

CBDt has vide its press release dated 22.07.2013 clarified that exemption from filing return of income for salaried employees having total income upto Rs. 5 lakhs including income from other sources upto Rs. 10,000/- was only for assessment year 2011-12 and 2012-13 respectively. The exemption was given considering ‘paper filing of returns’ and their ‘processing through manual entry’ on system.
However, this year the facility for online filing of returns has been made user-friendly with the advantage of pre-filled return forms. These E-filed forms also get electronically processed at the central processing centre in a speedy manner. Hence, the exemption provided during the last two years is not being extended for assessment year 2013-14.