EPFO welcomes clarity on income tax rules for private provident fund trusts

The Employees’ Provident Fund Organisation (EPFO) has welcomed the Union Budget 2026–27 proposal to rationalise the income tax framework governing provident fund (PF) trusts.

According to EPFO, the move will benefit stakeholders by aligning income tax provisions with the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Exemption

Recognition under the Income Tax Act, 2025 will now be granted only to PF trusts that have obtained exemption under Section 17 of the EPF Act. Section 17 allows eligible employers to manage their own PF accounts and funds without filing monthly EPF returns.

Investment norms

PF investments will continue to be regulated under the EPF framework and related rules. Notably, the earlier statutory cap limiting investment in government securities to 50% has been removed.

Employer’s contribution

Employer contributions will be tax-free up to ₹7.5 lakh per year. Any contribution beyond this limit will be taxed as a perquisite.

Overall, the Budget aligns investment norms and employer contribution limits under the Income Tax Act with those under the EPF framework.

Why it matters

The labour ministry noted that earlier differences between income tax provisions and the EPF Act, covering eligibility for exemption, investment patterns, and contribution limits, led to confusion and avoidable litigation for private PF trusts.

The new framework addresses these inconsistencies.

Recognised provident funds are governed by Schedule XI of the Income Tax Act, 2025.