The Employees' Provident Fund Organisation (EPFO) on February 04, 2026, applauds Rationalisation of Income Tax Regime for Provident Funds.
Recognised Provident Funds are governed by Schedule XI of the Income Tax Act, 2025. Earlier, inconsistencies existed between the Income-tax provisions and Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, particularly with respect to eligibility for exemption, investment patterns, and limits on employer contributions. These divergences often led to confusion and avoidable litigation.
The Union Budget (2026–2027) has rationalised and aligned the income-tax framework for recognised provident funds with the statutory and administrative provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ Provident Funds Scheme, 1952. Recognition under the Income Tax Act, 2025 will now be available only to provident funds that have obtained exemption under Section 17 of the EPF Act. Further, investment norms will continue to be governed by the EPF framework, with the removal of the rigid statutory ceiling mandating a maximum of 50% investment in Government securities.
In addition, the employer’s contribution to provident funds will now be subject to a uniform monetary ceiling of ₹7.5 lakh, beyond which such contributions shall be taxed as perquisites. Overall, this rationalisation promotes convergence and harmonisation between the Income-tax regime and the Provident Fund law, bringing greater clarity, consistency, and certainty for stakeholders while reinforcing that EPF exemptions and investment norms are governed primarily by the EPF legislation.
Further details available here: Finance Bill & FAQs on Budget by CBDT.
[Release ID: 2222490]
