I plan to opt for the new tax regime when I file my ITR for AY 2025-26. I am currently in the old tax regime so 12% of my salary to the Employees’ Provident Fund (EPF) will continue for the rest of the financial year. Is it correct that I cannot claim a tax exemption on my EPF contributions? If I choose the new tax regime at the start of the 2025-26 tax year, can I ask my employer to stop deducting the 12% EPF contribution from my salary or is this contribution mandatory regardless of the tax regime? Does opting for the new tax regime mean that EPF’s tax-exempt-exempt-exempt (EEE) status no longer applies? In other words, is the tax-free nature of EPF contributions, growth and withdrawals affected by the new regime?

In case the new regime you will not be able to claim deduction of your EPF contribution. However, your employer’s contribution to the extent of 12% of salary continues to be exempt in your hands even under the new tax regime, subject to the overall limit of employer’s contribution to PF and NPS of ₹7.5 lakh annually. If it exceeded your salary ₹15,000 on enrolment, though you could have chosen not to register as a member for PF, once you have opted for PF, you cannot opt ​​out during the employment period. Therefore, even if your PF contribution which is deducted from your salary is no longer deductible under section 80C of the Income Tax Act, you should continue to contribute to PF during your employment.

However, you can choose to reduce your voluntary PF contribution ie PF contribution above 12% of ₹15,000. If your monthly salary is ₹60,000, your monthly contribution of ₹7,200 can be reduced to ₹1,800 (12% of ₹15,000). This is only an option if you have made a voluntary contribution for at least five years, as it is not possible to stop voluntary PF within five years of the start of this contribution. Also, the employer is not obliged to contribute to PF over ₹1,800 per month.

While reducing your PF contribution, you must remember that the employee contribution cannot be less than the employer contribution. You should consider whether such an option is beneficial to you, as a reduction in your employer’s PF contribution (which would otherwise have been exempt) would result in an increase in your taxable salary, as your employer will then pay you a taxable allowance for to compensate .

EPF continues to be part EEE; there is an employer contributions exemption, an earned interest exemption and a withdrawal exemption (all exemptions subject to thresholds) even under the new tax regime. Only the employee’s contribution to the PF is no longer tax deductible under the new regime.

Mahesh Nayak, Chartered Accountant, CNK & Associates