Finance Minister Nirmala Sitharaman has proposed to put a cap on tax exemption on employer's contribution under Employees' Provident Fund (EPF), National Pension System (NPS) and superannuation fund. In her Budget speech, the Finance Minister proposed a cumulative upper ceiling of Rs 7.5 lakh for these three investments which offers tax benefits.
"It is proposed to put an upper cap of Rs 7.5 lakh in a year on tax exempt employer's contribution in recognised provident fund, superannuation fund and NPS in the accounts of an employee," the Budget document says.
The proposed amendment will be effective from April 1, 2021, and will apply from assessment year 2021-22. This means that an employer's contribution beyond this limit will be subject to tax in the hands of the employee.
As of now, employer's contributions to provident fund and NPC are exempted from tax without an amount-specific ceiling. Only ceiling being that the employer's has to contribute 12 per cent of the basic pay towards the EPF, which is a part of the cost to company (CTC).
"There is no combined upper limit for the purpose of deduction on the amount of contribution made by the employer. This is giving undue benefit to employees earning high salary income," as per the Budget document.
The Budget proposed a host of proposals on the personal tax front including a "new, simplified tax regime", deferment of stock awards taxation in certain cases, etc. Sitharaman revised income tax rates for earning up to Rs 15 lakh, while no tax will be applied on earnings up to Rs 5 lakh. The new slabs have significantly reduced the taxes for most of the brackets, given that the taxpayers forego deductions and exemptions. Those earning Rs 5-7.5 lakh will now pay just 15 per cent, while those earning up to Rs 5 lakh in a year will pay no tax. If you are earning between Rs 10 lakh to Rs 12.5 lakh and between Rs 12.5 lakh and Rs 15 lakh, you will have to pay lesser tax than before.
By Chitranjan Kumar