Employer's contribution to PF, Superannuation, and NPS Exemption Restricted to 7.5 Lakhs, and TDS Rates Revised for Contract Employees

Revised Calculation for Taxable Perquisites

According to the revised budget, the amount above 7.5 lakh rupees is taxable when an employer’s contribution towards Employers PF, Employer NPS, and Superannuation exceeds 7.5 lakh rupees.

The calculation is as follows: 1. NPS is exempted to a maximum of 10% of annual basic salary. 2. Superannuation is exempted up to 1.5 lakh rupees. 3. PF is non-taxable if the total of employer’s contribution towards NPS, Superannuation and PF does not exceed 7.5 lakh rupees.

If the overall exempted amount exceeds 7.5 lakh rupees, the excess amount of Provident Fund will be calculated as taxable perquisite. To understand the new calculations, let us consider the following example:

In the above example, 1 lakh rupees of PF is also exempted after calculating exempted limits of NPS and Superannuation. As the maximum limit is 7.5 lakh rupees, the remaining 2 lakh rupees of PF will be considered as taxable perquisite. You can view these changes reflected in the application from July 2020 payroll.

TDS Rates Revised for Contract Employees

The Government of India has come up with reduced taxation rates to help taxpayers fight the Covid-19 pandemic. The government has reduced TDS rate for contract employees up to 25%. As per the revision in TDS, the contract employees will have to pay only 7.5% TDS instead of 10%. The new rates are applicable up to 31st March 2021.

These changes will be effective from July 2020 payroll in our application. The contract employee’s income tax will be calculated at the rate of 7.5% on gross income instead of 10%. To know more details, you can also read the press release document.

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