Provident Fund: How Should Provident Fund Trust Deed and Rules Consist of

Provident Fund
Provident fund is a retirement scheme aimed at the welfare of the employees. It is an investment
fund contributed by both the employees and the employer, which is presented to the employees
in the form of a lump-sum payment at the time of retirement. Provident Fund is founded as a
Trust by the Establishment after registration from the concerned Sub-registrar, to act as an
autonomous body.
The Provident Fund is of three kinds, which are:
Statutory Provident Fund
It is established under the Provident Fund Act, 1925 and is kept

primarily by the Government, semi Government organisations,
local authorities, and similar bodies. The payments made from
this Fund are neither liable to Income Tax nor are to be
recognised by the Commissioner Inland Revenue.
Recognised Provident Fund
It is documented by the Commissioner Inland Revenue under

the Sixth Schedule of Income Tax Ordinance, 2001. Private
sector institutions establish the Provident Fund of this nature.
The payments from this Fund are also not subjected to Income
Tax.
Unrecognized Provident Fund
Though, this kind of Provident Fund is not exempted from taxes

but is not taxed on a year-to-year basis. Only once the payment
is disbursed to the employee then the employer’s grant and
interest yielded on it is liable to be taxed.
How should Provident Fund Trust Deed and Rules consist of:
The capital is gathered from the employee and employers every month by the Trust and is
invested in legitimate securities and projects.
The employer builds the Provident Fund as a final and binding Trust, named after the Company’s
name followed by the quad-gram “Employees’ Contributory Provident Fund”. The Trust is
administered by three to five trustees whose names are to be written on Trust Deed, which is
signed on a Stamp Paper. The Rules of Provident Fund Trust are formulated separately. The
Trust Deed and Rules include all the contractual terms regarding the rights, duties, and liabilities
of the trustees, employer, employees, auditors, and bankers, etc. in detail.
The Trust Deed should include all the information necessary for the operations and handling of
the Trust. It must also contain complete regulations for the membership and the organisation’s
role and power in the management of the Fund. The policy of contributions, investment of
Fund’s capital, division and dispersion of profits, settlement of disputes should be stated clearly
and comprehensively in the Trust Deed.
It is obligatory to register Trust Deed with the Registrar of Trust. For the registration, one trustee
has to appear before the Registrar on behalf of all the trustees. The original Trust Deed and the
photocopy of Rules, copies of National Identity Cards and two photographs (Passport size) of all
the trustees are to be submitted to the Registrar. Following this procedure, the Trust and all the
trustees are required to obtain their respective National tax Numbers (NTNs).
Tax Exemption implications on Provident Fund:
Subsequent to the registration, the Trust has to apply for exemption from tax under Part I of the
Sixth Schedule of the Income Tax Ordinance, 2001 before the Commissioner Inland Revenue.
The Provident Fund enjoys a lifetime exemption from taxation after the application accepted.
Part I of the Sixth Schedule of the Income Tax Ordinance, 2001 has complete terms for the
approval.
Following are the conditions for approval:
1. All the employees should be employed in Pakistan, or the employer should be the legal
resident of Pakistan.
2. If only 10% or fewer employees are employed outside Pakistan, then the non-resident
employer also qualifies for tax immunity.
3. The amount deposited by the employer in the Provident Fund shall not exceed the
employee’s contribution.
At the end of the year, the revenue is distributed on the closing balance. The profit should ideally
be calculated on average balance.
The employees enjoy various benefits when part of the Provident Fund. They are entitled to get
loans or to withdraw their money temporarily. They can even withdraw their funds permanently,
but this is allowed in some special conditions. Above all, the members have the facility of an
interest-free loan. But, there are precise circumstances and boundaries for the eligibility of loans
which are mentioned in the Rules along with the complete procedure.

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Provident Fund

The Provident Fund is of three kinds, which are:

Statutory Provident Fund

It is established under the Provident Fund Act, 1925 and is kept

Recognised Provident Fund

It is documented by the Commissioner Inland Revenue under

Unrecognized Provident Fund

Though, this kind of Provident Fund is not exempted from taxes

Tax Exemption implications on Provident Fund:

Following are the conditions for approval:

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