Employer PF Contribution treatment

This query is : Resolved

CA Kamlesh Kukreja (Querist)
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01 June 2023 An Employee has Basic Salary of Rs:4.5 lakhs & PF Deduction is Rs:-54,000/- and Equal Contribution by Employer Also. Employee Also Had 80C Investment of 1.5 lakhs. My Question is How The Employer Contribution will Be Treated in Computation of Income

Salary 4,50,000
Less:-Employee PF Contribution 80C 54000
Less:-80C Deduction(Balance Limit) 96000
Net Taxable Income 3,00,000

or

Salary 4,50,000
Add:-Employer PF Contibution 80C 54,000
Less:-Employee PF Contribution 80C 54,000
Less:-80C Deduction(Balance Limit) 42000
Net Taxable Income 3,54,000

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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01 June 2023 Under the existing income tax laws, the employer’s contribution to the EPF account of an employee up to 12% remains tax-free. If it is above 12%, it becomes taxable. This provision is same under the new as well as old tax rates.

Any contribution of employee towards EPF of up to 12% is eligible for deduction under Section 80C of Income Tax. This will continue under the old tax rate. However, if you opt for the new tax rates, you will not be eligible to claim any tax deductions under Section 80C.

However, in another income tax rule change proposed in Budget 2020, the employer's contribution that is above Rs. 7.5 lakh in a year towards NPS or National Pension Scheme, superannuation fund, and EPF will be taxable in the employees’ hands. This will be applicable under both the old and new tax rates.

As such the net taxable SALARY income remains Rs. 3 lakhs under old regime, while 4.50 lakhs under new regime.
Standard deduction not considered here.