## Provident Fund — Taxability of the Four Funds

A PF is taxed at four points: employer's contribution, employee's contribution (deduction), interest, and lump-sum withdrawal. The treatment depends on the type of fund.

> 'Salary' for the RPF 12% test = Basic + D.A. (retirement) + Commission (% of turnover)

	SPF (Statutory — govt)	RPF (Recognised by CIT)	URPF (Unrecognised)	PPF (open to all)
Employer's contribution	Fully exempt	Exempt up to 12% of salary; excess taxable	Not taxable at contribution stage	N/A (no employer)
Employee's contribution	80C deduction (OTR)	80C deduction (OTR)	No tax benefit	80C deduction (OTR)
Interest on balance	Fully exempt	Exempt up to 9.5% p.a.; excess taxable	Not taxable at contribution stage	Fully exempt
Lump-sum withdrawal	Fully exempt u/s 10(11)	Exempt u/s 10(12) if conditions met	See split below	Fully exempt u/s 10(11)

### URPF — taxation of lump-sum withdrawal

Taxable as Salary: employer's contribution + interest on employer's contribution
Taxable as Income from Other Sources: interest on employee's contribution
Not taxable: the employee's own contribution (already taxed earlier; no deduction was given)

## Note 1 — Taxable Interest on Employee's Own Contribution (w.e.f. 1.4.2021)

For SPF/RPF, interest on the employee's contribution becomes taxable once contributions cross a yearly threshold:

₹2,50,000 per year if the fund has contributions from both employee and employer.
₹5,00,000 per year if there is NO employer contribution.

Interest earned on contributions up to these limits is exempt; interest on the excess is taxable.

Grandfathering: interest accrued on contributions made on or before 31.3.2021 is fully exempt, with no monetary limit — even if the interest accrues after that date.

### Two sub-accounts (from FY 2021-22)

The PF account must maintain two sub-accounts:

Non-taxable contribution account — contributions up to 31.3.2021 PLUS contributions within the yearly threshold from 1.4.2021, and their interest.
Taxable contribution account — contributions exceeding the yearly threshold (₹2,50,000 / ₹5,00,000) and the interest on that excess.

(Each computed after reducing any withdrawals from the respective account.)

Worked example

### Example 1

Excess employer contribution to RPF. Salary (Basic + retirement DA + commission) = ₹10,00,000. Employer contributes ₹1,50,000. Exempt limit = 12% × 10,00,000 = ₹1,20,000. Taxable employer contribution = 1,50,000 − 1,20,000 = ₹30,000 (taxed as salary).

### Example 2

Taxable PF interest (both contribute). An employee contributes ₹4,00,000 to RPF in a year where the employer also contributes. Threshold = ₹2,50,000. Interest on the excess ₹1,50,000 is taxable; interest on the first ₹2,50,000 is exempt.

### Example 3

No employer contribution. A self-employed-style contribution (or PF with no employer share) of ₹4,80,000 — threshold is ₹5,00,000, so the entire interest is exempt.

⚠️ Common exam mistakes

Applying the ₹2,50,000 threshold when there is no employer contribution — the limit then rises to ₹5,00,000.
Taxing interest on pre-1.4.2021 contributions — those are grandfathered and fully exempt with no limit.
Forgetting RPF interest is exempt only up to 9.5% p.a. and employer's contribution only up to 12% of salary.
Taxing the employee's own contribution on URPF withdrawal — only employer contribution + interest on it (salary) and interest on employee contribution (other sources) are taxed.
Using Basic + full DA for the RPF 12% test — use Basic + retirement DA + commission (% of turnover).

Reference: Section 10(11); Section 10(12) — Income-tax Act, 1961 (Fourth Schedule, Parts A/B); Section 10(11) and 10(12)

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Provident Fund — Taxability [SPF, RPF, URPF, PPF]

Worked example

⚠️ Common exam mistakes