Taxation of employee's contribution in the hands of Employer

Tue, 02 Mar 2021 18:18:10 +0530

EPF contribution-amendment in budget 2021

Till 1.2.2021,there was no clarification with respect to treatment of delay in depositing employees provident fund contribution.Due to certain ambiguity in Section 36(1)(va) and 43B of Income Tax Act,1961,the picture was not clear.

Let me start by linking the sections 2(24)(x),36(1)(va) and 43B.

Section 2(24)(x) states that 'any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees' is deemed income.

Section 36(1)(va) states that '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.'

Section 43B states that 'Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]

(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees,

(c)…………..

(d)………….

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.'

Ok is this too much??

Let me simplify it for you now.

If you as an employer receive any contribution from employees with respect to any provident fund/super annuation fund and you instead of depositing it ,keep it within your pocket even if by 1 day after due date of that respective fund,it will be deemed as your income.

So if the due date is 15th of August for the month July,and you deposit employee's contribution to EPF on 16th,the whole amount will be deemed as your income.

However then why the controversy??

The word contribution was not defined in 43B.It was ambiguous as to whether both employee's contribution and employer's contribution was included in it or not.

Many judgements were pronouned on this.Few were in favour and few against.

As a result,many people were getting demand notices considering the favourable view on behalf of Income tax department.

But now the picture is clear by AMENDMENT in Budget 2021.

It states 'provisions of section 43B applies to employer’s contribution to the statutory funds and shall not apply to employee’s contribution. It also clarifies that section 43B is not for the purpose of determining due date.'

Applicable date of amendment:1.4.2021

Conclusion:Now all employers need to deposit the employee's contribution timely. No excuses!!

RAKSHA AGARWAL AND ASSOCIATES - Blog #budget ,epf ,epf and budget ,36(1)va and budget,43b and budget

Taxation of employee's contribution in the hands of Employer

EPF contribution-amendment in budget 2021