No Deduction under income tax if Employee's share of EPF late deposited As we have known the issue many employer deducted the PF share on time but the
No Deduction under income tax if the Employee's share of EPF is late deposited
As we have known the issue many employers deducted the PF share on time but then deposit that amount after the due date so in the budget 2021 it is clarified that if the Employee's share of PF is not deposited on time then there will be no deduction under income tax is available
You can read the below part of the speech given by Finance Minister Smt. Nirmala Sitharaman in Budget 2021 speech:
We have noticed that some employers deduct the contribution of employees towards Provident funds, superannuation funds, and other social security funds but do not deposit these contributions within the specified time. For the employees, this means a loss of interest or income. In cases where an employer later becomes financially unviable, non-deposit results in a permanent loss for the employees.
In order to ensure that employees’ contributions are deposited on time, I reiterate that the late deposit of an employee’s contribution by the employer will not be allowed as a deduction to the employer.
Payment by an employer of employee contribution to a fund on or before the due date
Clause (24) of section 2 of the Act provides an inclusive definition of income.
Sub-clause (x) to the said clause provides that income include any sum received by the assessee from his employees as a contribution to any provident fund or superannuation fund or any fund set up under the provisions of the ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head 'Profits and gains of business or profession.
Clause (VA) of the said sub-section provides for the deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation to the said clause provides that, for the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.
Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards the employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, the assessee would be entitled to deduction under section 43B and the such deduction would be admissible for the accounting year.
This provision does not cover employee contribution referred to in clause (VA) of sub-section (1) of section 36 of the Act.
Though section 43B of the Act covers only the employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between the employer's contribution and the employee‘s contribution towards the welfare fund. It may be noted that employees' contribution towards welfare funds is a mechanism to ensure compliance by employers with labour welfare laws.
Hence, it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is the employee's own money and the employer deposits this contribution on behalf of the employee in a fiduciary capacity.
By late deposit of employee contributions, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (VA) of sub-section (1) of Section 36 of the Act was inserted into the Act vide Finance Act 1987 as a measure of penalizing employers who miss utilizing employee contributions.
Accordingly, in order to provide certainty, it is proposed to –
(i) amend clause (VA) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and is deemed to never have been applied for the purposes of determining the ―due date‖ under this clause; and
(ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and are deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.
These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
You can read the below part of the speech given by Finance Minister Smt. Nirmala Sitharaman in Budget 2021 speech:
We have noticed that some employers deduct the contribution of employees towards Provident funds, superannuation funds, and other social security funds but do not deposit these contributions within the specified time. For the employees, this means a loss of interest or income. In cases where an employer later becomes financially unviable, non-deposit results in a permanent loss for the employees.
In order to ensure that employees’ contributions are deposited on time, I reiterate that the late deposit of an employee’s contribution by the employer will not be allowed as a deduction to the employer.
Payment by an employer of employee contribution to a fund on or before the due date
Clause (24) of section 2 of the Act provides an inclusive definition of income.
Sub-clause (x) to the said clause provides that income include any sum received by the assessee from his employees as a contribution to any provident fund or superannuation fund or any fund set up under the provisions of the ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head 'Profits and gains of business or profession.
Clause (VA) of the said sub-section provides for the deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation to the said clause provides that, for the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.
Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards the employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, the assessee would be entitled to deduction under section 43B and the such deduction would be admissible for the accounting year.
This provision does not cover employee contribution referred to in clause (VA) of sub-section (1) of section 36 of the Act.
Though section 43B of the Act covers only the employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between the employer's contribution and the employee‘s contribution towards the welfare fund. It may be noted that employees' contribution towards welfare funds is a mechanism to ensure compliance by employers with labour welfare laws.
Hence, it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is the employee's own money and the employer deposits this contribution on behalf of the employee in a fiduciary capacity.
By late deposit of employee contributions, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (VA) of sub-section (1) of Section 36 of the Act was inserted into the Act vide Finance Act 1987 as a measure of penalizing employers who miss utilizing employee contributions.
Accordingly, in order to provide certainty, it is proposed to –
(i) amend clause (VA) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and is deemed to never have been applied for the purposes of determining the ―due date‖ under this clause; and
(ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and are deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.
These amendments will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
COMMENTS