Private PF Trusts to Follow EPFO Rules, Reducing Confusion and Litigation

New Delhi: Some large companies manage their employees’ provident funds (PF) independently through Exempted Trusts. The recently presented Union Budget proposed reforms for such trusts, aligning their rules with those of the Employees’ Provident Fund Organisation (EPFO).

Bringing Private PF Trusts on Par with EPFO
Under the new proposal, the rules governing private PF trusts that enjoy tax exemptions will now be standardized, following EPFO guidelines. This move aims to reduce discrepancies between Income Tax laws and the PF Act, 1952, particularly under Section 17, which previously created confusion for both companies and employees.

Earlier, private trusts faced differences in contribution limits, investment norms, and administrative requirements compared to EPFO. Now, recognized PF trusts will operate according to Schedule XI of the Income Tax Act, 2025, with investment regulations harmonized with EPFO standards. Employer contribution limits will also be aligned with Income Tax provisions.

Key Benefits of the Reform
The Income Tax Act, 2025, will now grant recognition only to those PFs that have exemption under Section 17 of the EPF Act, 1952. Companies can continue to manage employees’ PF accounts and apply for exemption from filing monthly EPF returns, but the rules will now be fully synchronized with EPFO’s statutory and administrative provisions.

Currently, private PF trusts face differences between Income Tax and EPF Act provisions regarding exemption eligibility, investment methods, and contribution limits. These discrepancies often cause confusion and unnecessary litigation. The new regulations aim to eliminate such issues by bringing private trusts under the same framework as EPFO.

Changes in Investment and Contribution Rules
The mandatory 50% investment in government securities has been removed, giving trusts more flexibility in investment decisions. Regarding employer contributions, the monetary ceiling will now be ₹7.5 lakh per year, with any excess contributions subject to tax.

The EPFO welcomed the move, stating that aligning Income Tax and EPFO rules under the 2026-27 budget will benefit all stakeholders, providing clarity, reducing disputes, and streamlining the administration of PF trusts.