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What do you mean by provident fund or meaning of provident fund


      The word ‘Provident’ means to provide for the future, hence this fund is to provide for the future. This fund is credited by an amount deducted from the salary of the employee every month at a certain rate and the employer also makes his own contribution of this fund. These contributions are invested to earn interest, which is also credited to the employee’s provident fund account. When an employee retires from his service, he receives this amount in lump-sum along with interest on it and is a great help to him at that time. If unfortunately, the employee dies during the tenure of his service, the amount of this fund is received by his wife and children on legal heirs, which is of great help to them.

Provident fund


       Provident funds are of four kinds:
1.   Statutory Provident Fund;
2.   Recognised Provident Fund;
3.   Unrecognised Provident Fund;
4.   Public Provident Fund.

     Now let us know all four kinds of Provident Funds

1.   Statutory Provident Fund.
     It is that Provident Fund to which the Indian Provident Fund Act, 1925 applies. Generally, This provident Fund is maintained by Government or Semi-Government offices, Like local authorities, Universities, other recognised educational institutions, statutory corporations and nationalized banks, etc.

2.   Recognised Provident Fund.
     It is a fund to which the Provident Fund Act, 1952, applies. There is one more alternative also. The fund which is not established under E.P.F Act of1952 has to be expressly recognised by the Chief Commissioner or Commissioner of Income Tax. Generally, this fund is maintained by scheduled banks, factories and several business houses. Thus, this fund is maintained by private sector organisations.

3.   Unrecognised Provident Fund.
     It is that provident Fund which is neither statutory nor recognised. Any institution or organisation can maintain this fund. It is approved by the P.F. Commissioner by not by the Commissioner of Income Tax. This is maintained in private sector organisations.

4.   Public Provident Fund.
      The Public Provident Fund Scheme was started from 1st July, 1968. Every individual (including a salaried employee) can subscribe to this fund any amount not less than Rs. 500 and not more Rs. 150000 in a year. One can also deposit money in instalment which cannot exceed 12 in a year. An individual can open a Public Provident Fund account either on his own behalf or on behalf of a minor of whom he is the guardian. However, an individual can open only one account in his own name. An account under this scheme can be opened at the branch of the State Bank of India or its subsidiaries or at a branch of any of the 13 nationalized banks authorised for this purpose by the Central Government.

     Any time after the end of 6th financial year from opening the account, a subscriber may withdraw as per rules. However, not more than one withdrawal is permissible during any one year.

     The interest is paid at the rate prescribed from time to time. Interest is allowed for each calendar month on the lowest balance at the credit of an account at the end of each year. It is totally exempted from tax. The deposits in the fund account in a financial year are entitled to the deduction under section 80C.

     Full withdrawal is allowed after 15 years; but in the event of death of the subscriber, full payment will be made even within this period to his nominee or his legal heirs. Even subscriber has an option either to close his account after completing 15 years or to continue the account for a further block period of 5 years. During the 5 year block period, a subscriber shall be eligible to make partial withdrawals not exceeding on every year; but the total of withdrawals, during the 5 year block period, shall not exceed 60% of the balance at his credit at the commencement of the said period.

     The entire amount received from this fund (including interest) is totally exempt from income tax.
     For purpose of salary we are concerned mainly with three kinds of Provident Fund, the provisions of which under the Income Tax Act, they are as follows:
1.   Statutory Provident Fund
2.   Recognised Provident Fund
3.   Unrecognised Provident Fund.

Hope you would have understood what is Provident Fund. You can comment below for any suggestions


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