Budget 2020: Expert explains how your EPF, NPS could become taxable

Budget 2020: While the government has decided to rejig the tax structure by introducing new slabs and reducing tax rates in almost all categories, your contribution towards employees provident fund, national pension system and other investment instruments might become taxable. From April 1, 2020, there will be a cumulative upper ceiling of Rs 7.5 lakh for the three investments which give tax benefits.

"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," Budget documents say.

"Employer contributions to PF and NPS were tax exempt without an amount specific ceiling. This meant that individuals with high amounts of basic salary could contribute 12% And 10% of basic salary without limit and avail tax exemption. The budget proposal seeks to introduce an aggregate limit of Rs. 7.50 Lakhs covering employer contributions to PF, NPS and Superannuation fund. Any contribution beyond this limit would therefore be taxable. This is likely to impact employees with high basic salary," explained Saraswathi Kasturirangan, Partner, Deloitte India.

Watch Union Budget 2020 Live TV Streaming Below on Zee Business:

He tried to explain the same with an example. If your basic salary is Rs 30 Lakh, aggregate amount of employer contribution could be:

12% PF - 3.60 Lakhs

10% NPS - 3.00 Lakhs

Special Allowance - 1.50 Lakhs

Total - 8.10 lakhs

The taxable amount would be Rs 60,000 - the difference between Rs 8.1 lakh and Rs 7.5 lakh - based on the proposal.

The new tax regime will be optional and the taxpayers will be given the choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions, the finance minister had said in the Lok Sabha while unveiling the Budget 2020-21.