Budget 2026: ₹10 lakh tax exemption threshold for employee EPF contributions, suggest experts

Interest on Employees' Provident Fund (EPF) contributions above ₹2.5 lakh is taxable at present. Ahead of Union Budget 2026-27, experts at the Bombay Chambers of Commerce and Industry (BCCI) believe there should be a higher exemption threshold, of up to ₹10 lakh, for EPF contributions by employees.

"At the very least, the threshold limit of ₹2.50 lacs for exempt interest income should be reconsidered and a higher limit (say ₹10 lakhs) should be prescribed," BCCI experts said in their pre-budget memorandum.

If not the above, the government should consider either of the following, according to the experts:

• Tax on contributions above ₹2.5 lakh only in case of voluntary provident fund; or,

• Modification in EPFO rules to stop employees from making any contributions over 12% of their Basic + DA.

The BCCI also shared the following rationale for such demands:

First, "India does not have a universal social security system applicable to all citizens and hence middle and upper class taxpayers have to provide for their own social security."

Second, "Provident fund has been traditionally a safe avenue for salaried taxpayers to build up a retirement corpus to maintain the same standard of living and/or for life events like marriage of children or buying of new home, etc."

Third, "employee’s contributions come out of tax paid incomes of the employees and HNIs would have paid tax at highest rate on the amounts so deposited."

Fourth, "For high salaried earner who wishes to create a retirement corpus through PF, there is no choice on quantum of contributions to be made. If the employee opts for PF, he is statutorily bound to contribute 12% of basic salary as employee’s contributions. Hence, it is unfair to make distinction between contribution up to ₹2.50 lakhs and contributions in excess of ₹2.50 lakhs."

Fifth, "There could be a valid case for not granting exemption on voluntary PF contributions in excess of stipulated statutory rate of 12% since such excess contributions are made voluntarily to earn tax free incomes. But in absence of facility under PF rules to limit employee’s contribution to ₹2.50 lakhs, it is unfair to tax the interest on contribution in excess of ₹2.50 lakhs made out of statutory mandate."

Sixth, "The new wage code is likely to impact the salary structure as according to the provisions of Wage Code the allowances cannot be more than 50% of the total remuneration. This may necessitate enhancing of Basic Salary to maintain same level of CTC for the employees. Consequently, PF outgo @ 12% of Basic Salary + DA will also rise and bring those employees who are presently contributing less than ₹2.50 lakhs within the scope of amendment made by FA 2021."

The exemption threshold with respect to employee contributions over ₹2.5 lakh was set by the Finance Act 2021. In case where there is no contribution by the employer, the exemption threshold was increased to ₹5 lakh.