The contribution by the employer is not taxed if it does not exceed 12 per cent of the employee’s salary (excluding allowances and perquisite but including dearness allowance if this forms part of salary as per the terms of employment). However, if it exceeds this limit, the excess over 12 per cent is taxed in the hands of employee.

Further, interest credited in recognised provident fund in excess of 9.5 per cent is taxable in the hands of the employee; however, interest credited in statutory provident fund, unrecognised provident fund and public provident fund is totally exempt from tax.

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