BUDGET
To rationalise provisions of recognised provident funds
This story was originally published at 18:27 IST on 1 February 2026
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NEW DELHI – The government has proposed an overhaul of tax rules governing recognised provident funds to ensure compliance and simplify the rules to bring them in line with existing employee provident fund norms. Presenting the Union Budget for 2026–27 (Apr–Mar) in the Lok Sabha on Sunday, Finance Minister Nirmala Sitharaman said the changes aim to rationalise Schedule XI of the Income-tax Act, which lays down conditions for a provident fund to qualify for tax benefits.
A recognised provident fund is a retirement savings scheme set up by an employer and approved by the government. Contributions made to such funds, subject to conditions, enjoy tax exemptions for both employers and employees.
The government plans to remove parity-based rules, percentage caps, and special relaxations tied to salary levels or shareholder status, the Budget proposed. It also proposed to align the eligibility for recognition of provident funds with exemption rules under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 – the main law governing EPFO-managed retirement savings.
In addition, investment-related provisions in Schedule XI will be modified to remove rigid statutory caps that do not match prevailing norms followed by the Employees' Provident Fund Organisation. End
Reported by Pallavi Singhal
Edited by Avishek Dutta
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