Any contribution by employers towards these social security schemes beyond Rs 7.5 lakh per annum would be treated as perquisite of the employee and taxed accordingly.
According to the Budget 2020-21 documents, it is "proposed to provide a combined upper limit of Rs 7.5 lakh in respect of employer's contribution in a year to NPS, superannuation fund and recognised provident fund and any excess contribution is proposed to be taxable".
Consequently, the documents further said it is also proposed that any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to the employer's contribution which is included in the total income.
The documents also provided that this will take effect from April 1, 2021, and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
Under the existing provisions, the contribution by the employer to the account of an employee in a recognised provident fund exceeding 12 per cent of salary is taxable.
The amount of any contribution to an approved superannuation fund by the employer exceeding Rs 1.5 lakh is treated as perquisite in the hands of the employee.
Similarly, the assessee is allowed a deduction under NPS for the 14 per cent of the salary contributed by the central government and 10 per cent of the salary contributed by any other employer.
However, the documents stated that there is no combined upper limit for the purpose of deduction on the amount of contribution made by the employer.
"This is giving undue benefit to employees earning high salary income. While an employee with low salary income is not able to let employer contribute a large part of his salary to all these three funds, employees with high salary income are able to design their salary package in a manner where a large part of their salary is paid by the employer in these three funds."
Thus, it stated that this portion of salary is not taxed at any point of time, since the exempt-exempt-exempt regime is followed for these three funds.
Thus, not having a combined upper cap is iniquitous and, hence, not desirable, it added. KKS CS HRS