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Esi, pf

Muhammed (Chartered Accountant) (251 Points)

17 March 2015

one of my clients has paid pf share after the due date, whether i have to disallow the whole amount so what i have to disallow whether employees share or employer share ; whether the same provisions apply for esi also

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Vishal Goel (Chartered Accountant) (1688 Points)
Replied 17 March 2015

Employer’s Contribution

As per section 36(1)(iv) Deduction shall be allowed in respect of any sum paid by the employer by way of contribution towards a Recognized Provident Fund subject to limits prescribed in the recognition of the provident fund accorded by the Chief Commissioner or Commissioner of Income Tax.

Analysis

Employer’s contribution towards provident fund is allowable as deduction subject to the following conditions:

First condition is that, provident fund should be recognized. Thus, the employer will not get deduction in respect of contribution towards unrecognized provident fund.
Further, the deduction is subject to the conditions laid down under Section 43B.

As per the provisions of Section 43B, any sum payable by assessee as an employer by way of contribution towards provident fund shall be allowed as deduction only in the previous year in which such sum is actually paid by him. However, if such sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under section 139(1) in respect of previous year in which liability to pay such sum was incurred by the assessee, then deduction shall be allowed in the previous year in which liability was incurred.

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Vishal Goel (Chartered Accountant) (1688 Points)
Replied 17 March 2015

Employee’s Contribution

As per section 36(1)(va) Deduction shall be allowed for any sum received by the assessee from his employees as their contribution towards provident fund, if such sum is credited by the assessee to the employees account in the provident fund on or before the due date.

For the purpose of this section Due Date means the date of depositing PF as prescribed under PF Act.

Further as per section 2(24)(x) Income includes any sum received by the assessee from his employees as their contribution to provident fund.

Analysis

Employee’s contribution towards provident fund is allowable as deduction, subject to the following conditions:

Deduction shall be allowed if payment is made before the due date prescribed under PF Act i .e. 15th of the following month. However, as per the Guidance Note on Tax Audit issued by ICAI, the deduction under section 36(1)(va) shall be allowed even if the payment is made within the grace period falling after the due PF Act prescribes 5 grace days for depositing PF. Thus the deduction under section 36(1)(va) shall be allowed even if PF is deposited by 20th of the following month.
Deduction shall not be allowed if PF is deposited after 20th of the following month.
Provision of section 43B does not apply to employee’s contribution towards provident fund.

Muhammed (Chartered Accountant) (251 Points)
Replied 17 March 2015

will it be allowed as a deduction in the next year??

Vineet Goyal (Assistant Manager - Finance & Accounts) (702 Points)
Replied 17 March 2015

In case of Employer's Contribution - It is allowable as deduction if deposited before due date of filing of ITR.

In case of Employees' Contribution - It is allowable only if deposited before due date of deposit. If there is late deposit, It will be added to the profits. There is no provision regarding allowability in next year.. Sec 43B is not applicable in this case.

Regards

Vineet

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