New Delhi: The Employees’ Provident Fund Organisation welcomed the rationalisation of the EPFO tax regime after the Union Budget 2026-27 aligned income tax provisions with provident fund laws, the Centre said on Monday.
The government said recognised provident funds earlier faced differences between the Income Tax Act and the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. These differences related to exemption eligibility, investment patterns and employer contribution limits. As a result, stakeholders faced confusion and avoidable litigation.
Under the revised framework, only provident funds exempted under Section 17 of the EPF Act will qualify for recognition under the Income Tax Act, 2025. The change brings clarity on which funds can claim tax exemptions.
The government also aligned investment rules with the EPF framework. It removed the rigid ceiling that capped investment in government securities at 50%. Investment decisions will now follow EPF laws and related regulations.
EPFO tax regime clarified on employer contribution limits
The Union Budget also clarified the tax treatment of employer contributions. The employer’s contribution will now follow a monetary ceiling of ₹7.5 lakh. Any amount above this limit will be taxed as a perquisite.
The Centre said the rationalised EPFO tax regime strengthened convergence between tax law and provident fund legislation. It added that the changes protected stakeholder interests and reduced scope for disputes.
The government said the updated rules clearly established that EPF exemptions flowed from the EPF Act. It also confirmed that investment norms and contribution limits now matched across laws.
The Finance Ministry said detailed provisions were included in the Finance Bill and explanatory FAQs issued by the Central Board of Direct Taxes.
