Income tax deduction on EPF contribution

Income tax deduction on EPF contribution: Old tax rate vs new tax rate

All you need to know about Income tax deduction on EPF contribution. Check out the old tax rate and new tax rate here.

Employees’ Provident Fund is calculated on the basis of contributions made by the employee and the employer. According to the previous rates the employee contributions include 12% of the basic salary, EPS, EDLI and dearness allowances. In accordance with the updated Budget 2020, some deductions are foregone including the section 80C. Read on to find more information about the updated tax rates. 

  • The contribution of the employer, to the EPF account of the employee up to 12% is exempt from tax. The same will be taxable if it exceeds 12%. This legislation was the same under the old tax rates too. 
  • If you are opting new tax rates, the EPF contribution will not be eligible for the deduction under section 80C. PPF, NSC, NPS, Sukanya Samriddhi Account, Tax saver FDs, Post Office Term Deposit, ELSS, ULIP, Senior Citizens Savings Scheme, etc are the investment options that come under section 80C. 
  • Employer's benefaction exceeding ₹7.5 lakh in a year towards NPS, superannuation fund and Employees’ Provident Fund will be taxable in the hands of the employee. This is suitable under both the new as well as the old tax rates.
  • Deductions such as employer contribution on account of the employee in NPS under Section 80CCD can be availed with the old and new tax rates. For central government employees, the limit is 14% and for others it is 10%. The employees can restructure their salary structure to opt for this tax deduction if the employer also allows the same.

Tax Slabs As Per The Budget 2020

Income in Lakhs New Tax Slabs Old Rates
0 - 2.5 0% 0%
2.5 - 5 5% 5%
5 - 7.5 10% 20%
7.5 - 10 15% 20%
10 - 12.5 20% 30%
12.5 - 15 25% 30%
15 + 30% 30%

Exemptions and Deductions under old and new tax regime

Although the existing tax rates are quite high compared to the updated one, it allows a lot of ways to reduce the liability. Through various clauses and additions, the Indian government has introduced over 70 tax exemptions and deductions through which taxpayers can reduce the liability and hence save more of their income. The biggest deduction possible is Section 80C through which you can reduce your taxable income by Rs.1.5 lakh. 

Here are some of the other deductions and exemptions allowed by the old tax regime. 

Exemptions: House rent allowance, Leave travel allowance, Mobile and internet reimbursement, Food allowance, Company leased car, Standard deduction, Uniform allowance, Leave encashment. 

Deductions: PPF, ELSS, EPF, Life insurance premium, Principal and interest component of housing loan, Tuition fees for children, NPS investment, Health insurance, Savings account interest. 

The existing tax rates or the old regime are pretty high compared to the updated one. But it allows a lot of ways to reduce the tax liability. The changes in the introduced regime doesn't make things easier for taxpayers as it seems like in the first glance. Choose your regime according to your family's financial planning and investments. 

Here are the exemptions and deductions that are not included in the updated regime: 

Leave travel allowance, Conveyance, Relocation allowance, Children education allowance, Standard deduction, Interest on housing loan, Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA), Professional tax, Other special allowances, Helper allowance, Housing rent allowance. 

New tax regime FAQs

1)  Is EPF exempt from tax?

According to the Income-tax Act, monthly contribution towards the Employees Provident Fund (EPF) is eligible for tax benefits under Section 80C. The interest earned and money received on superannuation are completely tax-free. 

2)  Is EPF included in the new regime?

The tax rates for EPF remain the same for the updated tax regime. You shouldn't pay tax for the contribution unless the contributed amount raises more than 12% in a fiscal year. 

3) What are the three categories of taxpayers according to the old tax regime?

  • Taxpayers below the age of 60 years, which includes residents as well as non-residents
  • Resident senior citizens (60 - 80 years)
  • Resident super senior citizens (above 80 years )

4) Is the due date of filing ITR same for all taxpayers?

No, the due date for all taxpayers is not the same. 

5) Can I choose between the old and new tax regime?

You can choose between the new and old tax regime at the time of filing ITR for the fiscal year. If you don’t opt for any specific regime, it’ll be considered as the old regime. 

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