While the relief has been extended to taxpayers with new slabs at lowered tax rates but without exemptions, those individuals who make better income would need to recheck their CTC and if there is contribution in excess of Rs. 7.5 lakh towards retirement savings funds including provident fund, superannuation fund or NPS, from April 1, 2020 it shall attract tax, as per the announcement in Budget 2020.
The move as per Finance Bill 2020 is aimed at restricting the advantage which these employees stand to gain as perquisites.
"There is no combined upper limit for the purpose of deduction on the amount of contribution made by the employer. This is giving undue benefit to employees earning high salary income," Budget documents say. In the current regime, employer's contribution towards and employee's EPF account is tax exempt. In the case of NPS too, 10% of salary that includes basic and DA contribution to NPS is also tax exempt. But with the announcement, any of the contribution made to the above accounts in excess of Rs. 7.5 lakh in a year shall be taxable.
Say for instance, in a case a person makes a basic pay of Rs. 80 lakh, then the employer with contribution of 10% towards the person's PF would attract tax over Rs. 7.5 lakh i.e. the tax implication would arise on additional contribution of Rs. 50,000.