Finance Minister Nirmala Sitharaman, in the budget 2020-21, capped upper limit of tax-free employers' contribution to retirement funds. As per the budget, the contribution under National Pension scheme (NPS), recognized provident fund, and superannuation fund will have a limit of Rs 7.5 lakh, starting April 01, 2021.
The budget document states, "It is proposed to provide a combined upper limit of seven lakh and fifty thousand rupees in respect of employer's contribution in a year to NPS, superannuation fund and recognised provident fund and any excess contribution is proposed to be taxable. Consequently, it is also proposed that any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to the employer's contribution which is included in total income."
Earlier, employer contribution to PF and NPS was tax-exempt, whereas employees could contribute 12 per cent and 10 per cent of basic salary respectively to the funds.
For example, if a person earns Rs 30 lakh per year, the contribution would be as follows:
NPS= 3 lakh
PF= 3.6 lakh
Superannuation = Rs 1.5 lakh
Total = 8.1 lakh
Taxable amount = Rs 60,000 (8.1 lakh -7.5 lakh)
This move will have a negative impact. "This will have an impact definitely. The take home salary will go down as a higher amount will be taxable now. Also, the interest calculation is not yet prescribed; so, that will be a challenge for the corporates," Shubhada Shahade, co-partner, Shahade and Associates firm and a tax expert told NDTV.
A host of other income tax slabs have also been introduced in the budget. One would have to see how corporate India responds to these proposals.
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