New Delhi: While Union Budget 2020 brought cheers to middle-income group as far as income tax is concerned, what’s not so good news for the high-income group is that they will have to pay tax on their provident fund. (Full Coverage)Also Read - Union Budget 2020: Over Rs 17,300 Crore Allocated to Ministry of External Affairs; 100 Crore Earmarked For Strategic Chabahar Port

The government has proposed a combined upper limit on employers’ contribution towards the National Pension Scheme (NPS), superannuation fund and recognised provident fund at Rs 7.5 lakh annually for an employee. Also Read - Union Budget 2020: Rs 3.37 Lakh Crore Allocated For Defence Budget

This will take effect from April 1, 2021, and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years. Also Read - Union Budget 2020: Government Hikes Farm Credit Target to Rs 15 Lakh Crore

Existing provision

If the employer is contributing more than 12 per cent of the salary towards provident fund, then it’s taxable.

“This is giving undue benefit to employees earning a high salary income. While an employee with low salary income is not able to let employer contribute a large part of his salary to all these three funds, employees with high salary income are able to design their salary package in a manner where a large part of their salary is paid by the employer in these three funds,” the Budget document said.