About Provident Fund: There is no difference in meaning between “pension fund” and “provident fund,” hence either one may be used in its place. Employees who are quitting their jobs are the primary target demographic for this initiative, as its primary goal is to facilitate the process by which businesses present departing workers with a lump-sum cash payout at the moment of termination of their employment.
On the other hand, pension plans often incorporate both one-time distributions in the form of lump sums and continuous monthly pension payments in the form of pension payments. This is in direct opposition to the point that was made before.
Provident funds are considered to be defined contribution plans, while gratuity is considered to be a defined benefit plan. Gratuity is a defined benefit plan, whereas provident funds are defined contribution plans.
This is an important distinction to make when comparing gratuity and provident funds. Even though both types of funds involve one-time payments in the form of a lump sum when an employee’s employment comes to an end, this is an important distinction to make because gratuity is a defined benefit plan.
Different Kinds of Provident Funds
There are four different kinds of provident funds that employees are eligible to use in their careers. The public provident fund, the statutory provident fund, the acknowledged provident fund, and the unrecognised provident fund are the four distinct varieties of provident funds.
Let’s take a speedy look at the various forms of money and the taxes that are levied on those various forms of money.
Legislative Provident Fund Tax
Employer contributions to the provident fund are tax-exempt, but employee contributions are taxed. The retirement payment and the interest earned on the provident fund are tax-free.
Accepted Retirement Plan
A recognised provident fund has been approved by the Commissioner of Income Tax. An organisation with 20 or more members must invest funds by the PF Act, 1952, and receive approval from the PF Commissioner of Income-tax to be recognised as a charitable organisation.
Recognized Retirement Plan Tax
Provident fund contributions made by an employer are taxed if they exceed 12 percent. Employees’ contributions to the provident fund are taxed.
Tax will be deducted if the interest rate credited to the provident fund is greater than 9.5 percent.
If the employee has been with the company for at least five years
In cases where an employee has been laid off owing to a variety of circumstances, such as a health condition or a company termination, the individual may be entitled to compensation.
Employees who voluntarily leave one company and later return to it are considered to have resigned.