When it comes to your retirement, you need to be prepared.
A provident fund is a type of retirement plan in which employees can save money for their future. They’re popular in India and other countries with a strong social safety net, and they’re growing in popularity across the world.
There are two types of provident funds: Recognised Provident Fund (RPF) and Unrecognised Provident Fund (UPF).
The main difference between the two is that an RPF is managed by an institution or organisation that has been approved by the government, while an UPF is not.
Before we move to the differences, let’s understand what are Recognised Provident Fund and Unrecognised Provident Fund:
- Recognised Provident Fund: Recognised Provident Fund is a kind of pension fund that has been set up by employers and employees to provide retirement benefits. It is one of the best ways for employees to save for their retirement.
- Unrecognised Provident Fund: Unrecognised Provident Fund is a kind of pension fund that does not have the approval of government or any other authority.
Now, let’s move to Recognised Provident Fund vs Unrecognised Provident Fund:
Major differences between Recognised Provident Fund and Unrecognised Provident Fund
|Recognised Provident Fund||Unrecognised Provident Fund|
|The contribution to Recognised Provident Fund is not tax-free.||It is tax-free for Unrecognised Provident Fund.|
|Recognised Provident Fund is a type of pension fund that is established and supervised by the government. It is also known as a public provident fund.||Unrecognised Provident Fund, on the other hand, does not have any legal backing from the government. This type of pension fund is only available to companies that sponsor it themselves.|
|Recognized provident funds are governed by national acts such as EPF 1952 and PPF 1968, which dictate what benefits must be offered to members as well as how much money should be deposited into each account.||Unrecognized provident funds are not governed by any central legislation, so they can vary from state to state and company to company in terms of what they offer their members.|
|In recognized provident fund, an employer can make contributions to employee’s account.||In unrecognized provident fund, an employer cannot make a contribution to employee’s account.|
|In a recognised PF, there are fines for non-payment of contributions or levy payments.||In an unrecognised PF, there are no fines for non-payment of contributions or levy payments like those found in recognised PFs.|
Note that sometimes, the question might also be asked as “distinguish between Recognised Provident Fund and Unrecognised Provident Fund”.
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With the difference between recognised provident fund and unrecognised provident fund, it is clear that the former is more beneficial than the latter.
The reason for this is because a recognised provident fund has been established by an employer, who also contributes to it. This means that you can get benefits from it when you retire or leave your job. In contrast, an unrecognised provident fund does not have such benefits.
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