Budget 2020 has suggested a new tax regime which comes with lower income tax rates but entails an individual to forgo most usually availed 70 tax-exemptions and deductions. The new tax regime is optional in nature. This means that an individual having no business income can choose between any tax regimes every financial year as per his/her convenience.
In the new tax regime the tax benefit available on employee’s own contribution to EPF account is impacted.
EPF contribution: Existing vs new income tax regime
In the existing tax regime, an employer’s contribution up to 12 per cent of an employee’s salary is exempted from tax. Any contribution exceeding 12 percent in a financial year will be taxable in the hands of the employee. This will remain same in the projected new tax regime.
Therefore, in FY 2020-21, even if you opt for new tax regime, you will not be obligated to pay any tax on your employer’s contribution to your EPF account unless it is in excess of 12 per cent in a single fiscal. Remember, you cannot claim any tax-break on your employer’s contribution irrespective of whether you opt for new tax regime or the existing one. However, for FY 2020-21, if you choose to continue with the existing tax regime, then you are eligible to claim tax-break on the EPF contributions made by you under section 80C of the Income-tax Act.
On the other hand, if you choose to opt for the anticipated new tax regime, then you have to forgo 70 tax-exemptions and deductions which include the popular tax-deductions under Section 80C. Therefore, under the new tax regime you will not be able to claim tax benefit for your contribution to EPF account.