Budget 2026 has proposed several significant changes to the Employees' Provident Fund (EPF) rules, impacting both employees and employers. While the budget didn't introduce fresh incentives or structural changes for retirement schemes like EPF, Public Provident Fund (PPF), or the National Pension System (NPS), it focused on streamlining existing regulations and improving accessibility. These changes aim to simplify business operations, reduce legal disputes, and offer greater flexibility in managing PF accounts.

Key Changes Proposed

1. Rationalization of Employer Contributions:

Budget 2026 aims to remove salary-linked relaxations and shareholder-based distinctions in provident fund regulations. The proposal seeks to align eligibility for recognition with exemptions under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and modify investment-related provisions to remove rigid statutory caps inconsistent with prevailing EPFO norms.

• ₹7.5 Lakh Annual Cap: Employer contributions to PF, NPS, and superannuation, when combined, will remain tax-free if they stay within the overall ₹7.5 lakh annual cap.
• Removal of 12% Restriction: The budget proposes to remove the restriction that considered employer contributions above 12% of the PF salary as a taxable perquisite.
• Simplified Tax Rules: The changes simplify tax rules for PF trusts, ensuring that only those PF trusts that are exempt under Section 17 of the EPF Act will qualify for Income Tax recognition. This ensures that tax exemptions adhere to the same statutory thresholds and administrative criteria under the EPF law.

2. Streamlined Investment Norms:

Investment norms for PF funds are now fully governed by the EPF framework, offering greater flexibility in fund management. The earlier restrictive 50% limit on government securities has been removed.

3. UPI-Based Withdrawals:

One of the most visible reforms under EPFO 3.0 is the introduction of UPI-linked EPF withdrawals. EPFO is working on enabling members to withdraw funds using UPI platforms, potentially including the BHIM app. The proposed system is expected to display the total EPF balance, the amount eligible for withdrawal, and the mandatory minimum balance requirement of 25%. Internal discussions suggest that withdrawals may initially be capped at ₹25,000 per transaction, with further enhancements possible later.

4. Easier PF Withdrawals:

Employees who have completed just 12 months of service are now eligible to withdraw up to 100% of their eligible PF balance. EPFO has expanded and clearly defined the purposes for which PF advance withdrawal can be claimed. Employees can now withdraw PF for:

• Medical treatment of self or family members.
• Higher education expenses.
• Marriage of self or dependents.
• Housing-related needs such as purchase, construction, or renovation of a house.
• Special circumstances without assigning any specific reason.

5. Withdrawal Frequency Limits:

To ensure long-term retirement security while still offering flexibility, EPFO has introduced clear frequency limits.

• For medical emergencies, employees can withdraw PF up to three times in a financial year.
• For education and marriage purposes, withdrawals are allowed multiple times during the entire period of membership.
• Housing-related withdrawals are permitted up to five times over the course of service.
• A special category allows employees to withdraw PF without providing any reason, though this option comes with a limited frequency per financial year.

6. Unemployment Withdrawals:

Workers who leave employment can withdraw up to 75% of their PF savings immediately. The entire balance can be withdrawn after 12 months without a job. This replaces the earlier two-month timeline.

7. Alignment with EPFO Rules

The budget proposed to rationalize certain provisions for provident funds trusts, which were availing exemptions under the Schedule XI of the Income Tax Act, to fully align them with the exemptions applicable to the Employees' Provident Fund Organisation (EPFO).

These changes are expected to be effective starting April 1, 2026. The EPFO aims to make the entire process faster, more digital, and employee-centric by simplifying PF advance withdrawal rules and reducing paperwork. While the new PF withdrawal rules bring welcome flexibility, financial experts advise employees to use this option wisely, as PF is primarily a retirement fund, and frequent withdrawals may impact long-term savings.