Scribd Logo
Upload

Welcome to Scribd!

  • 105 views

    Provident Fund

    Uploaded by

    junaid khan
    Provident funds are retirement plans contributed to by both employers and employees. There are three types: statutory funds set up by the government, recognized private funds that receive tax exemptions, and unrecognized private funds with no exemptions but also no yearly taxability. To create a recognized private fund, an employer must register an irrevocable trust with the registrar, appoint trustees, draft trust rules, and apply to the Commissioner for tax exemption approval. The trust is then responsible for collecting contributions, investing the funds, and distributing profits to employees.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Provident Fund

    Uploaded by

    junaid khan
    105 views4 pages
    Provident funds are retirement plans contributed to by both employers and employees. There are three types: statutory funds set up by the government, recognized private funds that receive tax exemptions, and unrecognized private funds with no exemptions but also no yearly taxability. To create a recognized private fund, an employer must register an irrevocable trust with the registrar, appoint trustees, draft trust rules, and apply to the Commissioner for tax exemption approval. The trust is then responsible for collecting contributions, investing the funds, and distributing profits to employees.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Provident funds are retirement plans contributed to by both employers and employees. There are three types: statutory funds set up by the government, recognized private funds that receive tax exemptions, and unrecognized private funds with no exemptions but also no yearly taxability. To create a recognized private fund, an employer must register an irrevocable trust with the registrar, appoint trustees, draft trust rules, and apply to the Commissioner for tax exemption approval. The trust is then responsible for collecting contributions, investing the funds, and distributing profits to employees.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    105 views4 pages

    Provident Fund

    Uploaded by

    junaid khan
    Provident funds are retirement plans contributed to by both employers and employees. There are three types: statutory funds set up by the government, recognized private funds that receive tax exemptions, and unrecognized private funds with no exemptions but also no yearly taxability. To create a recognized private fund, an employer must register an irrevocable trust with the registrar, appoint trustees, draft trust rules, and apply to the Commissioner for tax exemption approval. The trust is then responsible for collecting contributions, investing the funds, and distributing profits to employees.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 4

    Introduction to Provident Fund

    Provident fund is a very common retirement plan to benefit the employees, which is contributory
    in nature and yields a feeling of participation in employees. The establishment settles the
    provident fund in form of trust, required to be register with the concerned sub-registrar for
    getting the status of an independent body.

    Laws Regulating the Provident Fund

    1. Provident Fund Act

    2. Income Tax Ordinance, 2001

    3. Companies Act, 2017

    Types of Provident Fund: –

    There are three types of provident fund, which are known as;

    Statutory Provident Fund:

    Which are set up under the Provident Fund Act, 1925 and is maintained by Government, semi-
    government organizations, local authorities and other such institutions. Payments from such
    funds does not need recognitions from the Commissioner Inland Revenue and are exempted from
    tax.

    Recognized Provident Fund:

    Which is recognized by Commissioner Inland Revenue under the sixth schedule of the Income
    Tax Ordinance, 2001. This type of Provident fund is maintained by private sector or
    organizations. Payments from such provident funds are exempted from Income Tax.

    Unrecognized Provident Fund:

    No exemptions are available but there is no yearly taxability. Employer’s Contributions and
    interest thereon will be taxable at the time of payments to the employees only.

    Legal Requirement and Procedure for Creating a Recognized Provident Fund

    1. TRUST DEED:

    The Provident Fund is created by the employer in the form of irrecoverable Trust, with
    the name, reflecting the name of the company and containing the term Employees’
    Contributory Provident Fund. At least three to five trustees are appointed for the
    management of the Trust who are named in the Trust Deed. The provident Fund Trust
    Rules are separately prepared / drafted. The Trust Deed is written on the Stamp Paper.

    The Trust is responsible for collection of contribution from employers and employees on
    monthly basis and to invest the same in various permissible schemes and securities.

    The Trust Deed and the Rules specify the terms and conditions pertaining to
    responsibilities, duties, rights and the liabilities of the company, employees, trustees,
    auditors, bankers, actuaries etc.

    The Trust Deed must broadly contain the information regarding administration and
    management of the Fund. The eligibility of the membership and companies’ roles and
    power in the administration of the Fund should also be given. Apart from it the
    contributions and investments of the Fund’s money should also be mentioned. The
    distributions of the profit among members and the terms regarding the dispute and
    arbitrations methods may be specified.

    REGISTRATION OF TRUST DEED:

    The Trust Deed should be registered with the Registrar of the Trust which is a mandatory
    requirement. One trustee can be authorized to be appear before the Registrar and the
    copies of ID cards of all the trustees and 2 passport sized photographs of each trustee
    have to be filed before the Registrar along with original Trust Deed and copy of the
    Rules. After its registration the Trust has to get its National Tax Number and all trustees
    have also to get their NTNs.

    After registration is done the application for tax exemption approval is to be filed under
    Part I of the Sixth Schedule of the Income Tax Ordinance, 2001 before the Commissioner
    Inland Revenue. Tax exemption’s approval is granted for lifetime of the Provident Fund.
    The conditions for the approval are also given in Part I of the Sixth Schedule of the
    Income Tax Ordinance, 2001.

    The conditions for tax exemptions are that all the employees should be employed in
    Pakistan or being employed by the resident employer. However, the tax exemption’s
    approval can be given to non-resident employer if the total ratio of employees employed
    outside Pakistan is not be more than 10%. The contribution of employer shall be not more
    than the employee’s contributions.

    RECOGNITION OF PROVIDENT FUND

    Application for recognition of provident fund: –

    (1) An application for recognition of a provident fund shall be made, in writing, by the
    employer maintaining the fund, setting out the following information, namely: –

    (a) The employer’s name and the address of the employer’s principal place of business;
    (b) The name of all employees, whether in or outside Pakistan subscribing to the fund;

    (c) The place where the accounts of the fund are or will be maintained; and

    (d) Where the fund is already in existence, a copy of the last balance sheet of the fund
    and details of the investments of the fund.

    (2) A verification in the following form shall be annexed to the application, name;

    “We/ I, the trustee(s) of the above named fund, do declare that what is stated in the above
    application is true to the best of our/my information and belief, and that the documents
    sent herewith are the originals or true copies thereof.”

    (3) Subject to sub-rule (4), the application shall be accompanied by the following


    documents, namely: (a)      The original of trust deed to be sighted by the Commissioner;

    (b)      A copy of the trust deed to be retained by the Commissioner; and

    (c)      The rules of the fund.

    Provided that if the original of the trust deed cannot conveniently be produced, the
    Commissioner may accept, in lieu of the original, a true copy certified either by a
    Magistrate or in any manner as provided by the applicable laws/for in the Companies
    Rules, 1984, in which case, an additional copy shall be furnished for retention by the
    Commissioner.

    (4) The application shall be lodged with the Commissioner responsible for the area/
    jurisdiction in which the accounts of the fund are kept, or, if the accounts are kept
    outside Pakistan, lodged with the Commissioner responsible for the area jurisdiction in
    which the local headquarters for the employer are situated.

    Distribution of Provident Fund:

    Profit is distributed at the year-end on the closing accumulated balance of the employees.
    It is advisable that the calculation is based on the average balance. The members of the
    Provident Fund can have the facility of loan / temporary withdrawal.

    They can also have the facility of permanent withdrawal on certain grounds. Interest free
    loans can also be availed, however, they are certain limits to loans as given in the Rules.
    The guidelines for Provident Fund and moneys are also be given in the Rules.

    Investment of Employer and Employee’s Contribution:

    The employer and employee’s contributions and interest shall be invested in accordance
    with the provision of Section 227 of the Companies Ordinance, 1984. Provident Fund
    investment rules were issued in the year 1996 which specifies the discipline for
    investment in the listed securities. These Rules have been amended from time to time
    specifically through SRO 261 of May 10, 2002. The Provident Fund Rules of 2005 were
    re-issued regarding investment of Provident Funds moneys. The Provident Fund Trust
    have to file its annual Tax Return each year treating itself a company.

    You might also like