The central government is mulling over raising the limit for tax-free contributions in the provident fund (PF) for all salaried employees to up to ₹ 5 lakh per annum, reported Hindustan Times.
The move will bring all salaried professionals at par with government employees.
“Several representations have been received in various ministries and departments to make this provision equitable and non-discriminatory and also to enhance the limit as this is one of the most effective social security mechanisms. It is being considered,” the news portal quoted people familiar with the matter.
Another person quoted by HT said: “For all practical purposes, particularly for private-sector employees, both employee and employer contributions are part of the negotiated salary, which is called cost-to-company (CTC). The employer’s contribution is always part of this CTC. Hence, there is a case for consideration.”
The Union finance minister had in budget 2021 announced capping of tax-free annual PF contributions to ₹ 2.5 lakh for availing tax-free interest income.
However, it later raised this limit to ₹5 lakh for such funds where employers do not contribute, in a decision that benefited only government employees.
Some tax professionals and PF experts had called the amendment “discriminatory”.
“Following Budget 2021, the government announced a further amendment in which it doubled the threshold limit of contribution from ₹2.5 lakh to ₹5 lakh for tax-free interest income if the PF contribution is made to a fund where there is no contribution by the employer,” said Archit Gupta, founder and chief executive of tax consultancy firm Clear.
“Hence, the government has provided relief for contributions made to the General Provident Fund (GPF), a facility which is available only to government employees, and where there is no contribution by the employer. Hence, for government employees, the cap for tax-free interest income is ₹5 lakhs,” added Gupta.