EPFO Welcomes Rationalization of Income Tax Regime for PF

• 04 Feb 2026
• 77 Views

The Schedule XI of the Income Tax Act 2025 governs the recognized Provident Funds (PFs) in India. There has been inconsistency regarding the eligibility for exemption under the Income Tax provisions and Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Additionally, the investment patterns that are specified under the Income Tax provisions and the EPFO differ from each other. 

The limits on employer contributions had not been harmonized across these two legislative frameworks. These discrepancies not only led to confusion but also resulted in unnecessary litigation. 

The Union Budget for 2026-2027 has now aligned the income tax regulations concerning recognized provident funds with the statutory and administrative provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 as well as the Employees’ Provident Funds Scheme, 1952. This was a much needed step. 

Exemption

Recognition under the Income Tax Act, 2025, will only be available to PFs that have received exemption under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Investments

The applicable EPF framework and subordinate legislation shall continue to govern the investment norms. The previously-set rigid statutory ceiling that restricted investment in government securities to 50% has been removed now. 

EPF Contribution of Employer

The employer's contribution will be limited to a monetary ceiling of Rs. 7.5 lakhs. If the contributions exceed this ceiling, they will be subject to taxation as perquisites. The rationalization of the income tax regime in the Union Budget 2026 will greatly benefit stakeholders by promoting convergence and harmonization with the Provident Fund legislation. 

It clarifies that EPF exemptions are governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The investment norms have been aligned with EPF standards and the limits on employer contributions are now consistent with the monetary ceiling set by the Income Tax Act.

If you want further clarification, you can check Finance Bill & FAQs on Budget by CBDT.