While the government has decided to rejig the tax structure by introducing new slabs and reducing tax rates in almost all categories, your contribution towards employees provident fund, national pension system, and other investment instruments might become taxable.
“Employer’s contribution to provident fund, NPS and superannuation worth more than 7.5 lakh a year will be taxable.”
Budget 2020- 2021 has proposed to put a cap on tax exemption on the employer’s contribution under Employees’ Provident Fund (EPF), National Pension System (NPS) and superannuation fund.
Finance Minister Nirmala Sitharaman proposed a cumulative upper ceiling of Rs 7.5 lakh for these three investments which offers tax benefits.
“Employer contributions to PF and NPS were tax-exempt without an amount specific ceiling. This meant that individuals with high amounts of basic salary could contribute 12% And 10% of basic salary without limit and avail tax exemption. The budget proposal seeks to introduce an aggregate limit of Rs. 7.50 Lakhs covering employer contributions to PF, NPS and Superannuation fund. Any contribution beyond this limit would, therefore, be taxable. This is likely to impact employees with the high basic salary,” explained Saraswathi Kasturirangan, Partner, Deloitte India.
The proposed amendment will be effective from 1 April 2021, the combined upper limit of Rs. 7.5 lakh in respect of employer’s contribution in a year to NPS, superannuation fund and recognized provident fund and any excess contribution will be taxable.
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