Recognised Provident Fund Rules: Tax on PF Withdrawal and Contributions (Income Tax Act 2025)

A recognised provident fund (RPF) is a provident fund that the tax department has recognised under Part A of Schedule XI of the Income-tax Act, 2025. The accumulated balance paid to an employee is excluded from total income if the employee completed 5 years of continuous service or meets one of the other exceptions. If none applies, the balance is taxed and section 191 tells the Assessing Officer to compute that tax under paragraph 9 of Schedule XI. Where the payment is made under the Employees' Provident Funds Scheme, 1952 and is taxable, 10% tax is deducted at source if the payment is Rs 50,000 or more.

This guide covers what makes a fund "recognised", when a withdrawal is tax-free, how the tax is worked out when it is not, and what changed from 1 April 2026. All figures come from the Act as amended by the Finance Act, 2026 and the Income-tax Rules, 2026. Last reviewed on 10 November 2026.

What is a recognised provident fund under the Income-tax Act, 2025?

Section 2(91) defines it as a provident fund that has been and continues to be recognised by the "approving authority" under Part A of Schedule XI. It also includes a fund set up under a scheme framed under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The approving authority is the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner (Schedule XI, Part A, paragraph 2(a)).

Part A does not apply to a fund governed by the Provident Funds Act, 1925 (paragraph 1). Those funds, such as government employee GPF, sit outside this framework.

What conditions must a provident fund meet to be recognised?

Paragraph 4 lists the conditions to receive and keep recognition. The approving authority can withdraw recognition if the fund breaks any of them (paragraph 3(1)).

Condition (paragraph 4)	What it says
(a) Where employed	All employees are employed in India, or by an employer whose principal place of business is in India
(b) Employee contribution	A fixed proportion of salary for the year, deducted from each periodical salary payment and credited to the individual account
(d) Trust	The fund is vested in two or more trustees or the Official Trustee, under a trust that cannot be revoked without the consent of all beneficiaries
(e) What the fund holds	Only contributions, their accumulations, interest, securities bought with them, and capital gains on fund assets
(f) Establishment	Fund of an establishment covered by section 1(3) of the EPF Act, 1952, or notified under section 1(4), which has obtained exemption under section 17 of that Act
(g), (h) Employer recovery	The employer cannot recover sums from the fund, except on dismissal for misconduct or when the employee leaves voluntarily before the service term in the fund regulations. Recovery is limited to the employer's own contributions, interest on them and accumulations
(i), (j) Payout	The accumulated balance is payable when the employee ceases to be an employee. No other part of the balance is payable, except as prescribed

Paragraph 5 relaxes some of these. For example, a fund of an employer whose principal place of business is outside India can be recognised if employees employed outside India are not more than 10% (paragraph 5(1)). The trustees can also keep an ex-employee's balance in the fund if the employee asks in writing (paragraph 5(3)).

When is the accumulated balance of a recognised provident fund tax-free?

The "accumulated balance due to an employee" is the balance to his credit, or the part he can claim under the fund's regulations, on the day he stops being an employee (paragraph 2(g)). Under paragraph 8(1) it is excluded from total income in any one of these cases:

• Five years or more of continuous service with the employer (paragraph 8(1)(a)).
• Service ended earlier due to the employee's ill-health, contraction or closure of the employer's business, or another cause beyond the employee's control (paragraph 8(1)(b)).
• Balance moved to a new employer's recognised fund, to the extent it is transferred to the individual account there (paragraph 8(1)(c)).
• Entire balance moved to a pension scheme referred to in section 124 and notified by the Central Government (paragraph 8(1)(d)).

If the balance includes amounts transferred from a previous employer's recognised fund, the earlier service counts towards the 5 years (paragraph 8(2)).

How is tax on an RPF withdrawal calculated under section 191?

Section 191 does not give a rate. It tells the Assessing Officer to calculate the total of the various sums of tax under paragraph 9 of Schedule XI. Paragraph 9 works in two steps:

1. The Assessing Officer works out the tax that would have been payable by the employee on his total income for each of the years concerned, as if the fund had not been a recognised fund (paragraph 9(a)).
2. The amount by which that total exceeds the tax the employee (or someone on his behalf) actually paid for those years is payable in addition to any other tax for the tax year in which the balance becomes payable (paragraph 9(b)).

Put simply, the law re-runs the earlier years as if the PF had been an ordinary, unrecognised fund, and the shortfall is collected in the year of payment.

How much TDS is deducted on a taxable PF withdrawal?

Section 392(7) applies to the Employees' Provident Funds Scheme, 1952 and persons authorised to pay under it. At the time of payment they deduct 10% where the aggregate payment is Rs 50,000 or more and the balance is includible in total income because paragraph 8 does not apply. For other recognised funds, the trustees (or the person authorised by the fund) deduct the amount payable under the rules at the time of payment, and Chapter XIX-B applies as if the balance were salary (paragraph 10; section 392(6)(a)).

Section 392(5)(c) lets the deductor adjust any excess or shortfall from an earlier deduction during the tax year.

Situation	Result	Provision
5 years' continuous service	Excluded from total income, no tax under paragraph 9	Sch. XI, Part A, para 8(1)(a)
Under 5 years, no exception, EPF scheme payment of Rs 50,000 or more	Included in income; 10% TDS	Section 392(7)
Under 5 years, no exception, payment below Rs 50,000	Still included in income; the 10% rule in section 392(7) does not apply	Section 392(7); para 9
Balance transferred to new employer's RPF	Transferred part excluded	Para 8(1)(c)

Worked example 1: TDS on an early EPF withdrawal

Assumptions: Anil resigns in tax year 2026-27 after 3 years and 4 months of continuous service. He is not leaving due to ill-health or closure, and he withdraws his balance instead of transferring it. The accumulated balance paid from the EPF scheme is Rs 2,40,000.

Step	Working	Result
1. Service test (para 8(1)(a))	3 years 4 months is below 5 years	Not met
2. Other exceptions (para 8(1)(b) to (d))	No ill-health, closure or transfer	None apply
3. Is the balance in total income?	Paragraph 8 does not apply	Yes
4. TDS threshold (section 392(7))	Rs 2,40,000 is at least Rs 50,000	TDS applies
5. TDS	Rs 2,40,000 x 10%	Rs 24,000
6. Net paid to Anil	Rs 2,40,000 - Rs 24,000	Rs 2,16,000

The Rs 24,000 is tax deducted at source. The final liability is the paragraph 9 amount (tax as if the fund were unrecognised, minus tax already paid for those years). Anil can claim credit for the Rs 24,000 when that is assessed.

Is employer contribution to a recognised provident fund taxable?

Not up to a limit. Under section 17(1)(h), the aggregate employer contribution of more than Rs 7,50,000 in a tax year across three places is a perquisite:

• a recognised provident fund;
• the pension scheme referred to in section 124(1) (the notified Central Government scheme); and
• an approved superannuation fund.

Section 17(1)(i) adds the annual accretion (interest, dividend or similar amounts) on that excess, computed in the prescribed manner. Salary under section 16 includes perquisites.

Worked example 2: employer contributions above Rs 7,50,000

Assumptions: tax year 2026-27, Meena is a senior executive. Her employer contributes the amounts below.

Fund	Employer contribution
Recognised provident fund	Rs 3,60,000
Section 124(1) pension scheme	Rs 2,40,000
Approved superannuation fund	Rs 2,50,000
Aggregate	Rs 8,50,000
Limit (section 17(1)(h))	Rs 7,50,000
Excess taxed as perquisite	Rs 1,00,000

Rs 8,50,000 - Rs 7,50,000 = Rs 1,00,000 is added to her salary. Interest or similar accretion on that Rs 1,00,000 is also taxable under section 17(1)(i).

Is interest on high PF contributions taxable?

Rule 277 deals with taxable interest where a person's contribution exceeds the specified limit. Taxable interest is the interest accrued during the tax year in the "taxable contribution account". Separate accounts must be kept from tax year 2021-22 onwards for taxable and non-taxable contributions (rule 277(2)). The threshold for the yearly contribution is (rule 277(3)(d)):

Employer contributes?	Threshold
No	Rs 5,00,000
Yes	Rs 2,50,000

Contributions above the threshold go into the taxable contribution account, and interest on that account is taxable. Illustration (rate assumed for arithmetic only): Ravi contributes Rs 3,00,000 in the year and his employer also contributes. Threshold is Rs 2,50,000, so Rs 3,00,000 - Rs 2,50,000 = Rs 50,000 is taxable contribution. If that Rs 50,000 earned interest of 8% for a full year, taxable interest is Rs 50,000 x 8% = Rs 4,000.

Real-life scenarios

Ravi stays 6 years and leaves. He has continuous service of more than 5 years, so paragraph 8(1)(a) excludes the accumulated balance from his total income. Section 191 is not triggered.

Meena changes jobs after 3 years. Her balance is moved to her new employer's recognised fund. Paragraph 8(1)(c) excludes the transferred amount. When she later leaves the new employer, her service with the earlier employer counts towards the 5 years because the balance includes transferred amounts (paragraph 8(2)).

Suresh leaves after 4 years because his employer shuts the unit. Termination due to closure of the employer's business falls under paragraph 8(1)(b)(ii), so the balance is excluded even though he is under 5 years.

An employer's fund loses recognition. The approving authority can withdraw recognition, and the order takes effect from the date it is made (paragraph 3(3)). The employer can appeal to the Board within 60 days of the order (paragraph 13). Rules under Part C paragraph 1(g) deal with the extent of tax exemption on contributions and interest in a fund whose recognition is withdrawn.

What happens when an existing fund gets recognised?

Where a fund with existing balances is recognised, an account is made up to the day before recognition takes effect (paragraph 11(1)). The part transferred into the recognised fund is called the "transferred balance". The Assessing Officer calculates the amount in it that would have been taxable if Part A had applied since the fund began, and that aggregate is deemed income of the employee in the year recognition takes effect (paragraph 11(4)). Section 16(j) treats it as salary. To pay that tax, the employee may withdraw from the recognised fund up to the permitted difference (paragraph 5(5)).

Where an employee assigns the PF interest

Under rule 295, if an employee assigns or creates a charge on his beneficial interest in a recognised fund, the Assessing Officer issues a notice. If the employee does not cancel the assignment or charge within two months of the notice, the consideration received is deemed income of the year in which the Assessing Officer became aware of it.

Common mistakes

• Counting only the current employer's years. Service under earlier employers counts when the balance includes transferred amounts (paragraph 8(2)).
• Treating a withdrawal as tax-free because TDS was not deducted. The inclusion in income depends on paragraph 8, not on whether TDS applied. A payment under Rs 50,000 can still be taxable.
• Adding up only the RPF for the Rs 7,50,000 limit. The limit is aggregate across the RPF, the section 124(1) pension scheme and an approved superannuation fund (section 17(1)(h)).
• Ignoring interest credited above the notified rate. Under Schedule XI, Part A, paragraph 6, interest credited at a rate above the one fixed by the Central Government by notification is deemed received by the employee and taxed for that tax year.
• Missing the 60-day appeal window when recognition is refused or withdrawn (paragraph 13).

Quick reference

Item	Figure	Source
Continuous service for tax-free balance	5 years or more	Para 8(1)(a)
TDS on taxable EPF balance	10% if payment is Rs 50,000 or more	Section 392(7)
Employer contribution limit (aggregate)	Rs 7,50,000 per tax year	Section 17(1)(h)
Employee deduction cap (Schedule XV items, aggregate)	Rs 1,50,000	Section 123; para 7
Appeal against refusal or withdrawal of recognition	Within 60 days to the Board	Para 13
Interest threshold, no employer contribution	Rs 5,00,000	Rule 277(3)(d)
Interest threshold, with employer contribution	Rs 2,50,000	Rule 277(3)(d)

On the employer side, contributions to a recognised provident fund are deductible under section 29(1)(a), subject to the prescribed limits. For more, see our guide on employee welfare deductions for PF, gratuity and superannuation and the related post on TDS on salary under the 2025 Act.

For a CA firm, the practical work is tracking which clients' employees have withdrawn PF with under 5 years of service, and what was deducted. Finexo's practice management software keeps client-wise tasks and deadlines in one place. It does not compute the paragraph 9 tax for you.

Where this is in the Act

• Section 191: tax on accumulated balance of a recognised provident fund
• Section 2(91): definition of recognised provident fund
• Schedule XI, Part A: recognition (paras 3 to 5), employee deduction (para 7), exclusion of balance (para 8), tax on balance (para 9), TDS (para 10), newly recognised fund (para 11), appeal (para 13)
• Section 16(i) and (j), section 7(1)(a) and (b): deemed receipt and salary inclusion
• Section 17(1)(h) and (i): employer contribution above Rs 7,50,000
• Section 29(1)(a): employer's deduction
• Section 392(6) and (7): TDS on accumulated balance
• Rule 277: taxable interest on high contributions; rule 295: assignment of beneficial interest

This article is general information based on the text of the Act and Rules. It is not tax advice for any specific case.