The Union Budget 2026-2027 has aligned the income-tax framework governing recognized provident funds with the statutory and administrative provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952 and the Employees’ Provident Funds Scheme, 1952.
Recognized Provident Funds are governed by Schedule XI of the Income Tax Act, 2025. At present, there is a divergence in eligibility for exemption under Income-tax provisions and Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952. Further, the pattern of investment notified under the Income Tax provisions and EPFO also varies. The limits of the employer’s contribution have not been aligned in the two enactments. These differences create confusion and give rise to avoidable litigation.
Retirement fund body EPFO has hailed the Budget proposal to rationalise Income Tax regime for provident fund trust. Here are 3 Big updates regarding provident fund accounts you need to know.
1. Exemption
Recognition under the Income Tax Act,2025, shall be available only to provident funds that have obtained exemption under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952.
2. Investment
Investment norms shall continue to be regulated under the applicable EPF framework and subordinate legislation. The rigid statutory ceiling restricting investment in Government securities to 50% has been removed.
3. Employer’s Contribution
The employer’s contribution shall be governed by the monetary ceiling of Rupees 7.5 Lakhs. Once this monetary ceiling is crossed, the contributions will be taxed as perquisites.
