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New Delhi: With effect from April 1, 2021, the combined upper limit of Rs 7.5 lakh in terms of employer's contribution in a year to National Pension System (NPS), superannuation fund and recognised provident fund and any excess contribution will be taxable, according to the Union Budget 2020.
The Budget has also proposed that even interest and dividend earned during the previous year would be taxable. Interest is treated as pre-requisite to the extent that it relates to the employer’s contribution which is included in total income.
Employer's contributions to PF and NPS were tax exempt so far without a specific ceiling. This meant that individuals with high amounts of basic salary could contribute 12 per cent and 10 per cent of basic salary without limit and avail tax exemption.
"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," the budget documents say.
While an employee with low salary income is not able to let employer contribute a large part of his salary to all these three funds, employees with high salary income are able to design their salary package in a manner where a large part of their salary is paid by the employer in these three funds.
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