Income Tax Benefits on EPF Contributions

The Salaried Employees typically used to have 12% deductions by
their Employer in their basic salary and dearness allowance towards
Employee’s Provident Fund (EPF) Contribution. Their employer also
contributes an equal amount of the deduction in the employee’s
EPF.

But are you opting for New Income

Rates?

The Union Budget for 2020-2021 was announced by Nirmala

Sitharaman, Finance Minister of India. As per her announcement in
the Budget 2020, in the Income Tax regime there are seven
Income tax slabs for all individuals in this financial year. 

These seven tax slabs in the new Income Tax Regime are zero tax
for income upto ₹2.5 Lakhs, 5% tax for income in between ₹2.5
Lakhs to ₹5 Lakhs and 10% tax for income in between ₹5 Lakhs to
₹7.5 Lakhs; 15% tax for income in between ₹7.5 Lakhs and ₹10
Lakhs; 20% tax for income in between ₹10 lakh and ₹12.5 lakh;
25% tax for income in between ₹12.5 lakh and ₹15 lakh and 30%
tax for income above ₹15 lakh.

Along with this, there are few key points to note:

1. This New Income Tax Regime under Budget 2020 had come up
with lower income tax rates.

2. The New Tax Regime also requires an individual to waive off the
most commonly availed 70 tax exemptions and tax deductions. 

3. The nature of this New Tax Regime is optional i.e. individuals
having no business income can choose between any of the seven
tax regime in every financial year as per their convenience. 

You must also keep in mind that you will be eligible to claim
tax-break on EPF Contributions made by you under Section 80C
of the Income Tax Act. This is possible when you continue with
the existing tax regime for the financial year 2020-2021.

However, if you will opt for the new Proposed Income Tax Regime
then you will not be able to claim any tax benefit for your
contributions made in your EPF Account. In this new Income Tax
Regime, you will have to forgo 70 tax-exemptions and deductions
included in the popular tax-deductions under Section 80C.

So, basically under Section 80C of Income Tax Act, your contribution
in your EPF Account of up to 12% is eligible for deduction and it will
be continued under the old tax rate. However, if you choose to opt for
the new tax rates then you wouldn’t be eligible to claim deduction
under Section 80C.