Tax on EPF in New Tax Regime 2026

In the New Tax Regime, employee contributions to the EPF are not eligible for tax deductions under Section 80C, meaning your contribution is made from taxed income. However, interest earned remains tax-free if your annual contribution is ₹2.5 lakh or less, and employer contributions up to ₹7.5 lakh per year are tax-free.

Key EPF Taxation Rules in the New Regime:

• Employee Contribution: No 80C deduction (₹1.5 lakh limit) is available.
• Interest Earned: Tax-free if your total annual contribution (EPF + VPF) is $$ ₹2.5 lakh. If contributions exceed ₹2.5 lakh, interest on the excess amount is taxable.
• Employer Contribution: Exempt up to ₹7.5 lakh annually (combined with NPS/Superannuation). Anything above this limit is taxable as a perquisite.
• Withdrawals: Tax-free, provided you meet the required conditions, such as five years of continuous service.

Key Point

No Tax Relief: Unlike the Old Regime, the 12% mandatory EPF deduction from your salary does not reduce your taxable income.

High-Income Earners: If you make large contributions (e.g., via Voluntary Provident Fund), interest on contributions over ₹2.5 lakh will be taxed.

New Tax Regime 2026

The New Tax Regime presents taxpayers with a more relaxed approach to income tax, featuring updated tax slabs and rates that are considerably more favorable than those found in the Old Tax Regime. However, it’s important to note that many of the deductions that were available under the previous system are no longer applicable. This change often leads to confusion among taxpayers who may find it challenging to distinguish between the exemptions and deductions permitted within the new framework. Understanding these differences is crucial for effective tax planning and maximizing potential savings.

1. Tax slab for FY 2025-26 (AY 2026-27) is as follows:

2. Standard Deduction for FY 2025-26

 Increased standard deduction of Rs. 75,000 applied to the new regime, without any further changes.

3. What is Surcharge under the New Tax Regime?

Under the revised new tax regime, the surcharge rate has been reduced from 37% to 25%  for taxpayers earning income more than Rs 5 crores. Therefore, this surcharge change applies only to those who opt for the new tax regime and have an income of more than Rs 5 crores.

The surcharge rates for various income levels are as under:

4. Why is There no Income Tax up to Rs. 12 lakh?

A tax rebate reduces your tax amount. However, a tax rebate is allowed only to the resident individuals. However, the tax slabs are applicable to all whether individuals, HUFs, AOPs, etc. or whether resident or non-resident. 

So while computing taxes, they will first be calculated as per the slab rates. Then the rebate shall be reduced from your final tax amount, bringing it down to zero. You will, however, get a rebate only if you are a resident individual. 

Similar to the old tax regime, where there are no taxes on total income up to Rs. 5,00,000, in the new tax regime as well there are no taxes on total income up to Rs. 12,00,000 due to rebate under section 87A.

5. What Deductions Are Available Under The Revised New Tax Regime?

Deductions in the new regime: 

• A Standard deduction for salaried individuals up to Rs 75,000 
• Standard deduction on such pension: ₹25,000 or 1/3rd of pension, whichever is lower
• Interest on Home Loan u/s 24b on Let-out property
• Employer’s contribution to NPS to the extent of 14% of Salary 
• All contributions to Agniveer Corpus Fund (section 80CCH)
• Leave Encashment u/Section 10(10AA)
• Gratuity u/ Section 10(10)
• Transport allowances to Persons with Disabilities 
• Exemptions for Voluntary Retirement Scheme u/ Section 10(10C)
• Gifts up to Rs 50,000

6. Will I Receive An Exemption On Leave Encashment Under New Tax Regime?

Yes, exemption on leave encashment is available under the new tax regime. 

In Budget 2023, the exemption threshold for leave encashment was increased 8-fold from ₹3 lakhs to ₹25 lakhs for non-government employees. 

Thus, at the time of retirement, leave encashment of up to ₹25 lakhs is tax-free under Section 10(10AA).

7. Which Tax Regime Is Better: Old or New?

There is no straightforward answer; it depends on the income, exemptions, and deductions that you are eligible for, and on the investments that you have made. 

Using our income tax calculator, you can calculate how much tax you can save under both regimes and decide the most beneficial regime for you. For a detailed understanding of which tax regime you must opt for according to your pay scale, click here. 

8. Are Investments In PF and VPF Taxable Under The New Regime?

Section 80C deduction is not available under the new regime. Click here to know what exemptions and deductions are allowed under the new regime.

9. Withdrawals from Agniveer Corpus Fund is not Taxable as Per Section 10(12C). Will this exemption be available under the New Regime too?

Yes. Any amount received from the Agniveer Corpus Fund will be tax-free under both the old and the new tax regimes.

An individual enrolled under the Agnipath scheme can make a contribution to the Agniveer Corpus Fund. An equal contribution shall be made by the government. Both these contributions will be allowed as tax deductions from your income under the newly inserted section 80CCH.

Not only this, but even the amount received at the end of your tenure will also be exempt from tax under the newly inserted section 10(12C). 

10. Given the Standard Deduction of Rs. 75,000 is there, will tax on an income of ₹ 12,75,000 be Zero as per the New Tax Regime?

A tax rebate on an income up to ₹12 lakhs was introduced under the new tax regime. This means that taxpayers with an income of up to ₹12 lakhs will not have to pay any tax at all if they opt for the new tax regime. Also, a Rs 75,000 standard deduction was introduced under the new tax regime. Therefore, a taxpayer with income up to Rs 12.75 lakhs will pay zero tax if he opts for the new tax regime. 

11. What is the Income Threshold for a Salaried Individual to be Exempt from Paying Taxes for the FY 2025-26?

For a salaried individual, the threshold for zero tax liability is Rs. 12,75,000 due to the Rs. 75,000 standard deduction available under the new regime and a Rs. 60,000 rebate available from FY 2025-26, which makes the tax liability zero.

12. Last year I filed as per the New Regime. Can I Switch to the Old Regime, and how frequently can I keep switching?

Starting from FY 2023-24, the new income tax regime will be considered the default tax regime. If you wish to switch to the old regime, you must submit a form, i.e., Form 10- IEA at the time of filing the return.  

How frequently you can switch between old and new regimes depends on your income type. If you have:

• Business or professional income: you can switch between the old and new regime only once in a lifetime
• Other than business/professional income like salary etc: You can switch between the old and new tax regimes every year.

13. How will Presumptive Taxation work in case of the New Regime?

The presumptive scheme works the same under the new and the old tax regime

*95% of your earnings should be received through online payment modes, not cash.

14. What are the advantages of the New Tax Regime?

Under the new tax regime, you don’t need to keep track of rent receipts, travel tickets, and complicated tax planning. The new tax regime offers lower tax rates and fewer deductions. This eliminates the need to invest in tax-saving schemes and insurance plans which may not align with your financial goals.

15. Will Insurance Proceeds be taxable – Will the originally paid Premium be exempt from that?

Amount received from a life insurance policy is exempt from taxes as long as the premiums paid on the policy does not exceed 10% of the sum assured. However, there have been instances of taxpayers exploiting this exemption by investing in policies with high premium contributions and claiming higher tax exemptions. To prevent such misuse, the government restricted the tax exemption on high value life insurance policies. Therefore, the amount received from life insurance policies will now be taxable if the annual premium paid in a year exceeds Rs. 5 lakhs.

Can I Claim Section 80C Deduction under the New Tax Regime?

No, if you opt for the new tax regime you will not be allowed any tax benefit under section 80C.

Can I Claim a Deduction for Home Loan Interest under the New Tax Regime?

Under the New Tax Regime deduction under Section 24b against home loan interest repayment is disallowed for a Self-Occupied Property (SOP). Further, the income from a Self-Occupied Property is always NIL. 

However, the interest deduction is allowed for a Let-Out Property without any upper limit under the New Tax Regime.  

• Understanding Income Tax Regime Options for Salaried and Businesses
• Tax Regime Switching How Many Times Can you change
• ITR filing 2025: Switching between old and new tax regimes? Know the eligibility, procedure and other rules
• How to transfer Old PF to New PF account 2023
• Income Tax Returns and Forms Applicable for Salaried Individuals for AY 2023-24