How much does your employer contribute towards EPF, EPS and NPS? If you cross this limit, you will be taxed

By | September 27, 2023
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Employer EPF Contribution: If you do a job, then a part of the salary is deposited in the Provident Fund. Investing in the Employee Provident Fund is done for your future. The employee has to deposit 12% of his basic salary and dearness allowance in EPF (Employee Provident Fund). Usually the employer also deposits 12 per cent in this fund. Apart from this, the employer can also deposit for you in NPS (National Pension System). This is important from tax point of view, although it is not mandatory. Do you know that from April 1, 2020, a cap has been imposed on EPF, EPS, NPS. If the employer deposits more than a limit in this fund, then the employee will have to pay tax on the additional amount.

The rule is applicable from 1 April 2020

In Budget 2020, the government had announced an upper limit regarding employer contribution. This rule is applicable from 1 April 2020. As we know, 12% of your basic salary is deposited in the provident fund by the employer. However, this amount is divided into two parts. A part is deposited in the Provident Fund of the employee. The second part is deposited in the Employee Pension Scheme.

Where is the 12% of the employer deposited?

As per the rules, out of 12 per cent employer’s contribution, only 3.67 per cent is deposited in the EPF account. The remaining 8.33 per cent is deposited in the EPS account. Another rule to be kept in mind here is that only a maximum of Rs 1250 can be deposited in EPS by the employer. If 8.33% of the basic salary exceeds Rs 1250, then the employer will transfer the additional amount to the PF account. The limit of Rs 1250 has been fixed on the basis of basic salary of Rs 15000.

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Employer can also deposit in NPS which will be tax free

Apart from this, the employer can also deposit in NPS for you. This is important from tax point of view. Deduction can be claimed under section 80CCD(2) on the amount deposited by the employer in NPS. Its maximum limit is 10 percent of basic and dearness allowance. If the employee also deposits in the NPS account, then he will get the benefit under section 80C only.

Know what is its upper limit

According to the Budget 2020 announcement, the amount deposited by the employer in any retirement fund including NPS, EPF, EPS will be exempted up to a maximum of 7.5 lakhs in a financial year. If your employer deposits more than this, then the additional amount will be taxable in the hands of the employee. The income from dividend and interest on excess contribution will also be taxable in the hands of the employee.