Section 10(12)- Payment Received from Recognised Provident Fund

It is tax-free in following cases only

1. The employee has rendered 5 years’ continuous service.

2. Though he has not rendered 5 years’ continuous service but the service has come to an end because of reasons beyond his control.

The Finance Act, 1974 has added a clarification to this exemption. If the accumulated balance standing in the name of employee is transferred from one recognised provident fund to another similar type of fund, such balance will not be added in the total income of the assessee. The period of five years will be counted by adding the period for which the fund remained with previous employer to the period for which the fund remains with the present employer from whom he is getting refund.

In case employee leaves service of his own accord before the expiry of 5 years, the amount on which tax has not been paid earlier is taxable under the head salary. As such taxable amount will be

(a) Employer’s contribution to RPF-upto 12% of employee’s salary; and

(b) Interest credited on RPF balance-upto 9.5% p.a.