A Recognised Provident Fund (RPF) is a retirement savings scheme set up by employers and approved by the Commissioner of Income Tax under Rule 3, Part A of the Fourth Schedule of the Income-tax Act.
Key Features:
- Contributions by both employer and employee.
- Interest earned on the corpus is typically tax-free (subject to certain limits).
- Final withdrawal is exempt under Section 10(12)if specified conditions are satisfied.
However, in non-compliant scenarios (like early withdrawal, excess contributions, etc.), the accumulated balance becomes taxable under Section 111.
When Does Section 111 Apply?
Section 111 kicks in when conditions of Section 10(12) are not fulfilled, making the accumulated balance partially or fully taxable.
Scenarios Triggering Taxation:
| # | Scenario | Triggered Section |
| 1 | Employee withdraws before completing 5 years of continuous service | Section 111 |
| 2 | Transfer from unrecognised fund to RPF (excess employer contribution) | Section 17(1) |
| 3 | Employer contributes more than ₹7.5 lakh p.a. (combined PF+NPS+SPF) | Section 17(2)(vii) |
| 4 | Employee’s own contribution earns interest exceeding limits | Rule 9D |
Legal Text Summary
“Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income due to provisions of clause (12) of section 10 not applying, the tax payable by the employee shall be calculated as if the fund had not been recognised from the beginning.”
🔑 This means:
- The entire amount is treated as if it came from an Unrecognised Provident Fund (URPF).
- All tax exemptions granted earlier under RPF rules are retrospectively revoked.
Detailed Tax Treatment of Components
| Component | Taxability (if exempt u/s 10(12) not available) | Head of Income | Notes |
| Employee Contribution | Not Taxable | N/A | Already taxed income |
| Interest on Employee Contribution | Taxable | Income from Other Sources | Subject to Rule 9D |
| Employer’s Contribution | Taxable | Salary (profits in lieu of salary) | Entire amount taxable |
| Interest on Employer’s Contribution | Taxable | Salary (profits in lieu of salary) | Entire amount taxable |
Additional Limits Introduced by Finance Act, 2021
Interest Taxation Threshold:
| Particular | Threshold | Rule |
| With Employer Contribution | ₹2.5 lakh/year | Rule 9D |
| Without Employer Contribution (e.g., Govt employees) | ₹5 lakh/year | Rule 9D |
Interest on employee’s contribution exceeding these limits is taxable from FY 2021–22 onwards.
Claiming Relief – Section 89(1)
Since the taxable components relate to multiple years, employee can claim relief under Section 89(1) by filing Form 10E.
This helps spread the tax impact over earlier assessment years, reducing the overall burden.
Tax Deduction at Source (TDS) – Section 192A
✅ TDS @ 10% (if PAN furnished), else 30%
Applicable if:
- Withdrawal is > ₹50,000
- Service is < 5 years
- No exemption available under Section 10(12)
TDS is not applicable if:
- Service > 5 years
- Withdrawal due to illness, disability, death, closure of business, or job loss
- Amount transferred to NPS or new RPF
Tax Calculation under Section 111 (Step-by-Step)
🧾 Example:
- Withdrawal: ₹10,00,000
- Employee Contribution: ₹3,00,000
- Employer Contribution: ₹3,00,000
- Interest: ₹4,00,000 (50% on each)
🧮 Tax Treatment:
- Employee Contribution → Not taxable
- Interest on Employee → ₹2,00,000 → Taxable under Other Sources
- Employer Contribution → ₹3,00,000 → Taxable as Salary
- Interest on Employer → ₹2,00,000 → Taxable as Salary
➡️Total Taxable = ₹7,00,000
Reporting in Income Tax Return (ITR)
| Item | ITR Section | Notes |
| Taxable Employer Contribution | Schedule Salary | Include under “Others” |
| Interest on Employer Contribution | Schedule Salary | Same |
| Interest on Employee Contribution | Schedule Other Sources | |
| Claim Relief | Form 10E | For Section 89(1) |
| TDS Credit | Schedule TDS | From Form 26AS |