First of all the employer does not provide facility of Provident Fund but he is compulsorily bound to do so if the number of employees exceed 20. He is covered under the Employee Provident Fund Act, 1952.
Even if the number of employees fall below 20 at any time during the year or in any year then too the Act continues to be applicable upon the company.
When PF Deducted
An employee drawing a basic salary of Rs.6500 has to compulsorily contribute to PF while an employee drawing a basic salary over Rs.6501 has an option to get PF deducted from his salary.
PF is deducted from basic salary @12%. If 12% is deducted from the salary of employee then an equivalent amount is to be deposited by employer.
Compound interest is available on the amount deposited to PF fund, which is declared by government every year and it may vary every year.
PF amount deducted from salary of employee is available as deduction under section 80C.
Amount deposited by employer or company is available to it as expense, when actually deposited.
To be come a member of PF, Nomination Form no. 2 has to be filled up.
To transfer your PF account from one company to another you need to fill Form 13.
To withdraw money from PF you need to fill Form 19
Accounting period of PF is from March to February every year.
Government credits the interest compounded on PF balance in April every year.
Provident Fund are of 4 types
1. Statutory PF
2. Recognized PF
3. Unrecognized PF and
4. Public Provident Fund.
Statutory PF is for Government employees, semi government, university/educational institutions, etc., where both contribution and interest is tax free on repayment. Deduction under 80C also available at time of contribution.
Statutory PF is set up under Provident Fund Act, 1925.
Recognized PF is applicable on all establishment employing more than 20 employees. This is covered by Employees's Provident Fund and Miscellaneous Provisions Act, 1952.
Employee's contribution: Deduction under section 80C.
Employer's contribution: Deduction as expense. Any excess amount deposited over 12% is taxable and is included in gross salary of employee as income.
Interest on PF: Exempt upto 9.5% anything above that will be included in gross salary.
Repayment of sum on retirement, resignation, termination: Exempt in following cases:-
1. Employee rendered continuous service of 5 years or more to his employer.
2. In case the service of employee is terminated due to ill health, or due to closure of employer's business or of reasons beyond control of employee.
3. If employee changes job but gets his account transferred under new employer who also maintains Recognized PF.
In all other case, where repayment is made, an employee will be liable to taxed on earlier exempted amount.
Unrecognized Provident Fund is a scheme which is not approved by commissioner of Income Tax.
Employee's Contribution: No deduction under section 80C.
Employer's contribution: Not taxable at time of contribution.
Repayment: Employee's contribution is not taxable, but interest on it taxable under head income from other sources. Employer's contribution and interest on the same is fully taxable as profit in lieu of salary.
Public Provident Fund is scheme for all (those who are employed and also who are not like businessmen). Anyone can open a PPF account and deposit a sum in this scheme. Maximum of Rs.100000 can be deposited in a year and deduction under 80C can also be claimed.
All sum received is tax free.
In your case you are most probably covered under recognized PF and accordingly you can get deduction under section 80C for the contribution made by you i.e amount deducted from your salary. At the time of repayment you can refer to the applicable provisions as mentioned above.