I need clarification on the recently changed taxation rules where employer contribution exceeding ₹7.5lakh per year ( EPF, NPS, SA) is made taxable in the hand of employee. My queries are
- Whether contribution towards VPF is also taken into consideration for arriving at ₹7.5 lakh per year figure?
- Whether interest earned from previous year’s employer’s contribution is also added to the ₹7.5 lakh tax exempt employer’s contribution figure?
By Balwant Jain, Chief Editor, ApnaPaisa
The contribution made by an employer to its employee’s provident fund account used to be fully tax free in the hands of the employee without any monetary limit as long as it did not exceed 12% of the basic salary and dearness allowance. However the Finance Act, 2020 has amended the situation and has put an absolute cap of ₹7.50 lakh on the aggregate of contributions made by an employee to recognised provident fund, National Pension System scheme and an approved superannuation fund taken together in a year. Any amount in excess of Rs. 7.50 lakh contributed by the employer to these accounts taken together shall be treated as perquisite in the hands of the employee and will be included in his salary and taxed at the slab rates. Even the interest or income accrued in respect of such excess contribution to these three accounts shall also be included in the value of perquisite of the employee year after year.
Please note that the contribution towards VPF i. e. voluntary contribution made by the employee to his own provident fund account beyond the permitted limit is not considered while arriving at the aforesaid limit of Rs. 7.50 lakh. This is so because this is the amount of contribution made by the employee and not by the employer.
The question of including, the interest accrued in respect of contribution made by the previous employer, in the aforesaid limit of 7.50 lakh does not arise as this cannot be treated as contribution of the employer. The interest credited in respect of contribution made by your previous employer as well as the current employer is fully tax free in your hands as long as you are employed in one company or another company. These will become taxable after your retirement to the extent not withdrawn by you.
(Views as expressed by the expert)