FM Proposes to Align ₹7.5 Lakh Annual Cap on Employer Contributions With EPF Act [Read Finance Bill 2026]

The Union Budget for the Financial Year 2026-27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026).

As part of the Finance Bill, 2026, the Finance Minister has proposed aligning the Rs. 7.5 lakh annual cap on employer contributions to retirement funds with the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, by amending Schedule XI to the Income-taxAct, 2025.

Clause 111 of the Bill seeks to rationalise the tax treatment of recognised provident funds by linking employer contributions to the aggregate monetary ceiling prescribed under Section 17(1)(h) of the Income-tax Act, 2025. Under this provision, employer contributions exceeding Rs. 7.5 lakh in a tax year to recognised provident funds, the National Pension System and approved superannuation funds are taxable in the hands of the employee.

The proposed amendment removes legacy provisions based on salary thresholds and discretionary relaxations that governed contribution parity under earlier rules. Instead, a uniform monetary cap will apply, bringing the income-tax framework in line with the EPF law, which does not differentiate based on salary levels or employee-shareholder status.

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The Bill also clarifies that exemptions from provident fund schemes will continue to be governed by the EPF Act, not the income-tax law. Further, restrictions on investment in government securities under Schedule XI are proposed to be amended to align recognised provident funds with prevailing EPF investment norms.

According to the explanatory memorandum, the objective of the amendment is to ensure consistency between tax and labour laws, simplify compliance for employers, and eliminate outdated provisions that no longer reflect the structure of the EPF framework.

The proposed changes will take effect from 1 April 2026 and will apply to the tax year 2026–27 and subsequent years.

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