Employer's contribution to provident fund beyond Rs 1.5 lakh to be taxed
 "Employer's contribution to provident fund beyond Rs 1.5 lakh to be taxed")
The finance minister has capped employers' contribution to provident fund at Rs 1.5 lakh a year. Whatever an employer contributes beyond this limit will be subject to tax in the hands of the employee.
Parizad Sirwalla, partner and head of global mobility services-tax, KPMG India, said: "The employer's contribution to EPF forms a part of the cost to company (CTC). And, it is mandatory that the employer contributes 12 per cent of the basic pay towards the EPF."
Say, a person earns Rs 20 lakh as basic pay. The employer will need to contribute Rs 2.4 lakh (12 per cent) to EPF. The new norms state that a contribution more than Rs 1.5 lakh will be taxed. This means, the employee will need to pay tax on Rs 90,000 (Rs 2.4 lakh-Rs 1.5 lakh).
Until now, there was no tax on employer's contribution.
The government has also increased the tax exemption on employer contribution to the superannuation scheme. Contribution of up to Rs 1 lakh was exempted but this has been changed to Rs 1.5 lakh. In an employee's superannuation scheme, the employer maintains a superannuation fund and regularly contributes to it. This pool can be used to make pension payments to retired employees.
Tax experts said the step would bring all retirement schemes on a par.
Parizad Sirwalla, partner and head of global mobility services-tax, KPMG India, said: "The employer's contribution to EPF forms a part of the cost to company (CTC). And, it is mandatory that the employer contributes 12 per cent of the basic pay towards the EPF."
Say, a person earns Rs 20 lakh as basic pay. The employer will need to contribute Rs 2.4 lakh (12 per cent) to EPF. The new norms state that a contribution more than Rs 1.5 lakh will be taxed. This means, the employee will need to pay tax on Rs 90,000 (Rs 2.4 lakh-Rs 1.5 lakh).
Until now, there was no tax on employer's contribution.
The government has also increased the tax exemption on employer contribution to the superannuation scheme. Contribution of up to Rs 1 lakh was exempted but this has been changed to Rs 1.5 lakh. In an employee's superannuation scheme, the employer maintains a superannuation fund and regularly contributes to it. This pool can be used to make pension payments to retired employees.
Tax experts said the step would bring all retirement schemes on a par.