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PF Full Form: Types, Works, Objectives, Tax

A Provident Fund, often referred to as PF, is a financial safety net established by employers to support their employees’ long-term savings and retirement planning. Every month, a portion of your salary is deducted and contributed to this fund, and your employer also adds to it. This fund grows over time through compound interest. The primary goal of a Provident Fund is to ensure financial security for employees after they retire or when they’re no longer able to work. It acts as a form of forced savings, helping you build a substantial corpus for the future.

Table of Content

Pf Full Form

Types of Provident Funds

  1. Employee Provident Fund (EPF): This is the most common type, where a portion of an employee’s salary and an equal amount from the employer are contributed. It primarily focuses on building a retirement corpus.
  2. Public Provident Fund (PPF): A government-backed savings scheme where employed and self-employed individuals can invest for retirement. It offers tax benefits and has a fixed maturity period.
  3. Voluntary Provident Fund (VPF): This is an extension of the EPF, allowing employees to contribute more than the mandatory amount to their EPF account voluntarily, helping them boost their retirement savings.
  4. Employee Pension Scheme (EPS): A part of the EPF, EPS provides pension benefits to employees after their retirement. It guarantees a monthly pension based on years of service and average salary.
  5. Recognized Provident Fund (RPF): Maintained by employers, it’s a provident fund that qualifies for tax benefits under the Income Tax Act. It requires specific regulations to be followed.

How Provident Fund Works

  • A Provident Fund operates like a long-term savings plan that helps you secure your financial future, especially during your retirement years. Imagine a dedicated jar where you and your employer regularly put a part of your earnings. This jar grows over time as you keep adding money, and it earns extra money through interest.
  • Every month, a portion of your salary is set aside and put into your Provident Fund account. Your employer adds to this amount too, doubling your efforts. This money is not immediately accessible, which is a good thing because it prevents you from spending it impulsively.
  • As years pass, your Provident Fund grows larger due to the compound interest it earns. Think of it like snowballing – the bigger your fund becomes, the more it earns in interest, leading to even more growth.
  • When you retire or after a certain period of time, you can access the money you’ve accumulated. It’s like opening that jar you’ve been filling. This becomes your safety net, providing you with a steady income during retirement or helping you fulfil important financial goals.

Important Factors Regarding Provident Fund (PF)

  1. The financial year that follows the year in which new interest rates are published, which is defined as April 1 through March 31 of the following year, is valid.
  2. Only EPF deposits made in the period of April 2021 through March 2022 will be eligible for the current interest rate of 8.50%.
  3. While interest is calculated on a monthly basis, it is only deposited into the EPF account once a year, on March 31st of the relevant fiscal year.
  4. A dormant or inactive EPF account is one that has not been used for 36 months in a row.
  5. Interest can be earned on accounts that are dormant for workers who haven’t yet retired.
  6. Deposits made into retired employees’ inactive accounts are not subject to interest.
  7. Interest accrued on accounts that are not being used is taxed at the member’s applicable slab rate.


  1. Make sure that every employee has a separate EPF account.
  2. Compliance must be straightforward to obtain.
  3. Make certain that businesses consistently abide by the EPFO’s rules and regulations.
  4. To enhance the capabilities of internet services and to ensure their dependability.
  5. All member accounts should be accessible online with ease.
  6. It will take just three days instead of 20 to resolve a claim.
  7. Voluntary compliance is encouraged and promoted.

Employee's Contribution

The rate of employee contributions is frequently set at 12 per cent. The following organizations, however, charge a flat payment of 10 per cent.

  1. Organizations or companies that have no more than 19 employees.
  2. Some businesses have been classified as sick industries by the BIFR.
  3. Compared to their net worth, organizations lose a sizable sum of money every year.
  4. Coir, guar gum, beedi, brick, and jute industries.
  5. Organizations that make monthly payments of less than Rs. 6,500

Tax Implications of Provident Fund

The tax implications of a Provident Fund are important to understand. When you contribute to an Employee Provident Fund (EPF) or Public Provident Fund (PPF), the money you put in qualifies for tax deductions. This means the amount you contribute can be subtracted from your total taxable income, which in turn lowers the amount of income you’re taxed on. It’s like getting a reduction in your taxable earnings.

However, it’s essential to remember that while your contributions get tax benefits, the interest your Provident Fund earns is also considered. If the interest earned exceeds a certain limit, it might be subject to taxation. This is called the Exempt-Exempt-Tax (EET) system, where the contributions are exempt from tax, the growth is exempt from tax, but the final withdrawal could be taxed depending on the rules at that time.

FAQs About RBC

Employees and employers contribute a percentage of the employee’s salary to the Provident Fund. The fund accumulates over the years, earning compound interest. This fund can be withdrawn by the employee upon retirement or under specific circumstances like buying a house or medical emergencies.

There are various types of Provident Funds, including Employee Provident Fund (EPF), Public Provident Fund (PPF), Voluntary Provident Fund (VPF), and more, each catering to different needs and situations.

Yes, in most cases, the contributions made by employees to Provident Funds are eligible for tax deductions under certain limits. However, the final taxation depends on the withdrawal rules and interest earned.

Employers deduct the employee’s contribution from the salary and add their own contribution. They also manage the administrative aspects of the fund, including reporting and documentation.

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