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Mumbai ITAT: India Inc to pay tax on employees contribution to PF if not deposited before PF due date
May, 27th 2013

If India Inc does not deposit provident fund or employee state insurance contributions collected from its employees promptly, as per the due dates under these legislation, it will have to pay tax on the same.

In a recently heard tax appeal, in the case of LKP Securities, the Mumbai Income tax appellate tribunal (ITAT) distinguished between the employer's and employee's contribution towards PF dues and ESIC.

The employee's contributions will be allowed as a deduction only if these are deposited before the due date under the respective legislations, viz: 15th of the following month in respect of PF contributions and 21st of the following month in case of ESIC.

The leeway available in the Income-tax (I-T) Act that such contributions will be allowed as a tax deduction if paid before the due date of filing the return of income, applies only to employer's contribution, ruled the ITAT. For the F.Y. 2012-13, India Inc will file the corporate tax return by September 30, 2013.

To illustrate: Under the PF Act, the employer contributes 12% of the eligible salary of an employee towards PF. The employee makes a similar contribution which is deducted from the employee's salary and collected by the employer for the purpose of depositing with the PF fund.

Under the I-T Act, the employer's contribution is admissible as a business deduction, whereas the employee's contribution is deemed income in the hands of the employer and allowed as a deduction when it is deposited in the PF fund.

Based on the ITAT order, which is contrary to more lenient view taken by the judiciary earlier, if the employee's contribution is deposited before the date of filing the tax return but after the PF due date, the same will not be allowed as a tax deduction in the hands of the employer organisation. In such circumstances it will be taxed as deemed income in the hands of the employer organisation.

According to latest audited statistics available at the EPFO PF arrears aggregate to Rs. 3583 crore. That portion which represents PF contributions collected from employees but not deposited by the PF due dates is now likely to be contested by tax authorities in open assessments.

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