EPFO welcomes Income Tax rationalisation for private PFs

New Delhi: Retirement fund body EPFO on Tuesday hailed the Budget proposal to rationalise Income Tax regime for provident fund trust and said it will go a long way in serving stakeholders' interests through convergence and harmonisation or norms.

The Union Budget (2026-2027) has aligned the income tax framework governing 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, a labour ministry statement said.

At present, there is a divergence in eligibility for exemption for private PF trusts under Income Tax provisions and Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, it said.


Further, it explained that the pattern of investment notified under the Income Tax provisions and EPFO also varies.

The limits of the employer's contribution have not been aligned in the two enactments.

These differences create confusion and give rise to avoidable litigation, it stated.

Recognised Provident Funds (or PF trusts) are governed by Schedule XI of the Income Tax Act, 2025.

EXEMPTION

Recognition under the Income Tax Act, 2025, shall be available only to provident funds that have obtained exemption under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.

Under Section 17, the employers can seeks exemption from filing monthly EPF returns for maintaining its employers accounts as well EPF money.

INVESTMENT

Investment norms shall continue to be regulated under the applicable EPF framework and subordinate legislations.

The rigid statutory ceiling restricting investment in government securities to 50 per cent has been removed.

EMPLOYER'S CONTRIBUTION

The employer's contribution shall be governed by the monetary ceiling of Rs 7.5 lakh per annum.

Once this monetary ceiling is crossed, contributions will be taxed as perquisites.

The EPFO stated that "The rationalisation of the Income Tax regime in the Union Budget (2026-27) will go a long way in serving the interests of its stakeholders by convergence and harmonisation with the Provident Fund enactment."

Now, it clearly reflects that EPF exemption is governed by Employees' Provident Funds and Miscellaneous Provisions Act, 1952, it noted.

The investment norms have now been aligned with the EPF investment norms and the limits on employer's contribution with the monetary ceiling under the Income Tax Act.