Is Employer Contribution to PF Taxable Under the New Tax Regime in FY26?

The Employees’ Provident Fund (EPF) has long been a go-to retirement savings option for salaried individuals in India, known for its reliability and tax benefits. Under the old tax regime, both employer and employee contributions to EPF enjoyed significant tax exemptions, making it a key component of tax-saving strategies.

However, with the adoption of the new tax regime introduced under Section 115BAC of the Income Tax Act, many of these tax incentives have been revised or eliminated. In this blog, we explore how employer contributions to EPF are treated under the new tax regime in FY26.

Employer’s Contribution to EPF

• Tax-Exempt Up to 12% of Salary: Employer contributions to EPF are tax-exempt up to 12% of the employee’s salary.

• Combined Cap of ₹7.5 Lakh: The total employer contributions to EPF, National Pension System (NPS), and superannuation funds are tax-exempt up to ₹7.5 lakh per annum. Any amount exceeding this combined limit is taxable in the hands of the employee.

Employee’s Contribution to EPF

• No Tax Deduction: Under the new tax regime, employee contributions to EPF are not eligible for tax deductions under Section 80C.

Interest Earned on EPF

• Tax-Exempt Up to ₹2.5 Lakh: Interest earned on employee contributions up to ₹2.5 lakh per annum is tax-exempt. Interest on contributions exceeding this limit is taxable.

A Quick Overview

Read More: Is Employee Contribution to PF Taxable Under the New Tax Regime in FY26?

Should You Choose the New Tax Regime?

The new tax regime offers lower tax rates but removes most exemptions and deductions, including those under Section 80C. Here’s what you should consider before switching:

You might prefer the new regime if:

• You don’t make significant tax-saving investments (e.g., EPF, ELSS, insurance).

• You want simplified tax filing.

• Your total exemptions/deductions are less than ₹2.5–₹3 lakh annually.

You might prefer the old regime if:

• You contribute significantly to EPF and claim full 80C benefits.

• You pay for insurance, tuition fees, or home loan principal.

• You also claim HRA, home loan interest, and other deductions.

Conclusion

The new tax regime brings a shift in how Employee Provident Fund (EPF) contributions are treated, especially when it comes to tax exemptions and deductions. While employer contributions up to 12% of the salary remain tax-exempt, there is now a combined cap of ₹7.5 lakh for employer contributions to EPF, NPS, and superannuation funds.

Anything beyond this limit will be taxable. Additionally, employee contributions no longer benefit from Section 80C deductions, and interest earned on EPF contributions over ₹2.5 lakh is also subject to tax.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.