Social security: Cap on employers’ contribution

New Delhi, February 1

The government today proposed a combined upper limit on employers' contribution towards the National Pension System (NPS), superannuation fund and recognised provident fund at Rs 7.5 lakh annually for an employee.

Any contribution by employers towards these social security schemes beyond Rs 7.5 lakh per annum would be treated as perquisite of the employee and taxed accordingly.

According to the Budget 2020-21 documents, it is “proposed to provide a combined upper limit of Rs 7.5 lakh in respect of employer's contribution in a year to NPS, superannuation fund and recognised provident fund and any excess contribution is proposed to be taxable”.

Consequently, the documents further said it is also proposed that any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to the employer's contribution which is included in the total income.

The documents also provided that this will take effect from April 1, 2021, and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years. Under the existing provisions, the contribution by the employer to the account of an employee in a recognised provident fund exceeding 12 per cent of salary is taxable. — PTI