However, note that if the employer’s contribution to EPF, NPS account (combined) exceeds a specified limit, the excess will be taxable in the hands of the employee. In addition, any interest, dividend etc. earned on the additional contribution will also be taxable.
This amendment was announced in Budget 2020. As per the announcement made, if the total contribution of an employer to EPF, NPS and retirement fund exceeds Rs 7.5 lakh in a financial year, then the additional contribution will be taxable in the hands of an employee. Apart from this, any interest, dividend etc. earned on additional contribution is also taxable. This income tax rule is effective from 1st April, 2020 i.e. from the financial year 2020-21.
so, post assessment season It is important to check whether your employer’s contribution to EPF and NPS will be taxable in your hands.
How to check whether employer’s EPF, NPS contribution is taxable
To know how much your employer has contributed to your EPF and NPS account, one needs to check your appointment or assessment letter.
CA Ruchika Bhagat, MD, Neeraj Bhagat & Co – a chartered accountant firm says, “Your appointment or assessment letter mentions your employer’s contribution to your EPF account. If you have earned income from the employer under section 80CCD(2) If you have opted for NPS contribution. -Tax Act, 1961, then such contribution will also be mentioned on your appointment or assessment letter.”
things to note
It is important to note that an employer’s contribution is divided into two parts. Out of 12% contribution of employer to EPF, only 3.67% gets deposited in EPF account. The remaining 8.33% is contributed to the Employees’ Pension Scheme (EPS) account. Also, note that the EPS contribution is calculated on the limit of Rs 15,000. This means that an employer can contribute a maximum of Rs 1,250 towards EPS and the balance amount is deposited in the EPF account.
Now the question is whether the EPS contribution will be taken into account while computing the taxable portion of EPF?
“The Income Tax Law does not differentiate between EPF and EPS contribution. Therefore, the entire EPF contribution made by the employer to the EPF account (as mentioned on the appointment/assessment letter) will be taken into account to determine whether Whether the contribution exceeds the specified level,” explains Bhagat.
She further mentions, “Employer’s contribution to EPF account is not taxable in the hands of employees, provided the contribution is up to 12% of salary (Basic + DA). If the employer’s contribution exceeds the limit, it will be accompanied by Also taxable. In addition, the employee can also claim tax benefits under section 80C for his share of the contribution made under EPF, subject to a maximum of Rs 1.5 lakh.”
In case of employer’s contribution to the NPS account, an employee can claim tax deduction under the income tax laws. The maximum deduction that can be claimed under section 80CCD(2) is 10% of the salary (Basic + DA). This tax deduction is in addition to the Section 80C deduction of Rs 1.5 lakh and Section 80CCD (1B) of Rs 50,000. However, when an employee’s contribution under section 80CCD(1) is clubbed with section 80C, as a result, the total amount of deduction under section 80C including NPS contribution by an employee cannot exceed Rs.1.5 lakh in a financial year. Is.