Employer Contribution-PF(New Pension Scheme)

Dear All,

My client is Central Government employee, he is getting PF contribution under New Pension Scheme(NPS) from employer side.

His employer is making taxable income in the following way, suppose his salary break up is here under:

Basic Salary: 10000

HRA: 4000

Gross Salary: 14000

Employer Contribution: 2000

Taxable salary they are considering is 16000p.m and giving deduction under 80CCD of Rs4000(2000 for employee contribution and 2000 for employer contribution). Due to the Government contribution, i.e 2000 the limit under section 80C is exhausted by 2000.

In my view the employer contribution should not be included in the Total taxable income and only employee contribution should be allowed as deduction under section 80CCD.

In short, we should not include employer contribution as income of employee and should not take deduction of the same further. The benefit of taking this is that he client can have more savings as investments under section 80C as they are not blocked due to employer contribution.

Requesting you to refer any Section, Notification issued in this regard by Income Tax.

Do the needful ASAP.

Regards,

CA. Anuj Kumar Sharma.

Hi Friend,

Well you are quite correct. PF is contributed by the employer is not taxable in the year of contribution because it is niether accrued to nor received by the employee in the year in which contribution is made. This is because salary accrues when the employee has a right to claim the money. In case of PF he can withdraw the money only when he resigns or retires. Hence it is not included in his total income. However for contribution made to Recognised PF the limit is 12% of salary. In case of CG employees no limit is there.. So no amount would be included in total income of that employee even if the contribution is made to NPS. Therefore the question of including it in deduction does not arise...

Hope this clears your doubt..

Regards,

Chintan