Taxability of contribution to recognised provident fund

Under the Income-tax Act, a recognized provident fund enjoys certain tax benefits. Recognized Provident Fund is applicable to an organization with strength of 20 or more employees.

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

Interest credited in Recognised Provident Fund is exempt upto 9.5% i.e., interest credited in Recognised Provident Fund in excess of 9.5% p.a. is taxable in the hands of the employee. However, interest credited in Statutory Provident Fund, unrecognised Provident Fund and Public Provident Fund is totally exempted. Moreover, employee can claim deduction for his own contribution u/s 80C of the Income Tax Act, 1961.

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