Tax-Free Limit of Rs.2.5 Lakh on EPF Contributions: Will the FM Review It?

Finance Minister Nirmala Sitharaman has stated that she is open to review the tax-free limit of Rs.2.5 lakh on the Employees’ Provident Fund (EPF) contributions per financial year. To give a little recap, the Finance Minister had announced that EPF depositors investing more than Rs.2.5 lakh per financial year in EPF would have the interest taxable. This was announced in her Union Budget 2021 speech.

Many questions were raised about whether the move would block high-income earning individuals from using EPF as a safe haven to park their funds and reduce their tax liability. 

Speaking of this matter, the Finance Minister has expressed that the matter could be open to review. She has also mentioned that the move had no intentions to discourage high-income earners from using EPF for saving.

Ms Sitharaman has stated that the move did not mean to discourage individuals who earn more than Rs.15,000/month from contributing to EPF. She also mentioned that she is open for discussion on the matter of the Rs.2.5 lakh limit. However, the move only intended to target those who contribute far more funds in EPF than an average Indian citizen’s earnings per month.

Meanwhile, Nirmala Sitharaman has also said that they have no plans to merge EPF with the National Pension Scheme (NPS) and continue to function as separate entities, i.e. as they have been functioning so far. EPF is a source of comfort to salaried individuals, especially middle-income earners, as it provides assured returns. Therefore, it is bound to continue in its present form, she said.

Regarding the fuel prices, Sitharaman said that the Centre and states should discuss how to handle the issue. She expressed that one of the solutions for this could be taking it into the GST net. This can help achieve one rate across the country. Though GST Council can consciously make an effort to handle the issue, both the Centre and states must agree to it.

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