Finance Bill 2026 has proposed the rationalisation of provisions relating to recognised provident funds, as well as a change in the due date for depositing employee contributions by employers to claim such contributions as deductions. 

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Let’s look at the key employee provident fund (PF) changes proposed in the Finance Bill 2026.

Rationalising PF provisions

Currently, provident funds are governed by Schedule XI of the Income Tax Act, 2025, under which they face restrictions like parity-based limits on employer contributions, percentage caps on excess contributions, differentiated limits for employee-shareholders, and investment limits in Government securities, among others, the tax department said in its Budget FAQs. 

The Finance Bill 2026 has proposed to rationalise Schedule XI by deleting or amending certain provisions in Parts A and C, aligning them with the statutory and administrative provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ Provident Fund Scheme, 1952 and other provisions in the Income-tax Act, 2025. 

“It is proposed to amend Schedule XI to rationalise the provisions relating to recognised provident funds by deleting parity-based and percentage-based limits on employer contributions, removing salary-linked relaxations and shareholder-based distinctions, aligning eligibility for recognition with exemption under section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and modifying investment-related provisions to remove rigid statutory caps inconsistent with prevailing EPFO norms,” the Budget 2026 speech says. 

The Bill has proposed to bring employer contributions under the aggregate monetary ceiling of ₹7.5 lakh prescribed under section 17(1)(h) of the Income Tax Act, 2025, removing the provisions of Schedule XI that restrict the said contributions. 

In simple words, the tax conditions and restrictions will be removed, giving employers more flexibility to structure compensation as long as they don’t cross ₹7.5 lakh total across PF/NPS/superannuation. 

What changes for the employees?

There is no change for the employees. They will still get a tax-free employer contribution up to ₹7.5 lakh. “Employer contributions shall be subject to the monetary ceiling prescribed under section 17(1)(h) of the Income-tax Act, 2025. Once this monetary ceiling is crossed, the contributions will be taxed as perquisites. The existing provisions in Schedule XI of the Income Tax Act, 2025, deeming employer contributions as income, are proposed to be omitted,” the Budget document says. 

Shareholders of the company

No separate limits or conditions will be applicable to employees who are also shareholders of the employer company, the tax department said. 

Earlier, Schedule XI had stricter rules for employees who were also shareholders of the company. This requirement is now removed.

“The differentiated limits presently provided in Schedule XI are proposed to be removed, and such employees shall be governed by the same contribution framework as other employees, i.e., the limit prescribed in section 17(1)(h) of the Income-tax Act, 2025, and the framework set in place by the EPFO,” the tax department said. 

PF money in government securities

Under Schedule XI, at least 50% of the provident fund corpus had to be invested in Government securities. Now, there is no fixed rule on this. 

“The rigid statutory ceiling restricting investment in Government securities to 50% is proposed to be removed. Investment norms shall continue to be regulated under the applicable EPF framework and subordinate legislation,” the tax department said in the Budget FAQs.

Due date changes

The FM also proposed rationalising the due date to deposit the employee contribution by the employer to claim a deduction.

“It is proposed that deduction of any amount of contribution received by the assessee being an employer, from an employee, shall be allowed as deduction in the hands of the assessee if such amount is credited by the assessee to the account of the employee, in any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, on or before the due date of filing of his return of income under section 263(1) of the Act,” the Budget 2026 document said.

What does this mean for employees?

As per Section 29(1)(e) of the Income Tax Act, 2025, contributions received by the employer from employees can be claimed as a deduction if they are credited to the employee’s account within the due date.

“At present, payment of employer’s contribution to PF/ESI is allowed as a deduction, if such amount is actually paid on or before the due date of filing of return of income under section 263(1) of the Income-tax Act, 2025, for the employer. Whereas payment of employee contribution is allowed as a deduction, if the amount is paid within the due date of the relevant fund,” the tax department said.

The FM has proposed to change this due date to the Income Tax Return (ITR) filing date.

Why is this extension being given?

Presently, employer contributions are allowed as a deduction if paid up to the ITR filing date, but employee contributions deducted from salaries must be deposited within the due date of the relevant fund (generally the 15th of the following month). 

The proposed amendment will align the treatment of employee contributions with that of employer contributions. “Thus, the change is proposed to align the due date for employee contribution with that of employer contribution, as there is no such distinction in the relevant Acts. Further, there are adequate compliance provisions embedded in the respective Acts to persuade compliance on the part of the employer,” the tax department said. 

These amendments will come into effect from April 1, 2026.