PF liability – Where to disclose in Tax Audit?

Mahendra Singh

PF – Employee’s Lability & Employer’s liability – Where to  disclose in Tax Audit?

1. Employee’s Contribution Clause 20 and
2. Employer’s Contribution Clause 26

Dear All,

Very well said by ICAI president CA. M. Devaraja Reddy (in May 2016 journal) “Let us think big and consolidate our skills, energies and strengths to become bigger and better.”

This article had been presented before you all with an intention to provide clarity in relation to correct disclosure in Tax Audit regarding Clause number for Provident Fund contribution and Due date to be mentioned in those clauses.

PF liability has been bifurcated between 2 heads:

1. Employee’s contribution to PF and
2. Employer’s Contribution to PF.

Assesse (here an Organisation) has to credit Employee’s contribution to government on or before the specified due date i.e. on 15^Th of following month. (Grace period of 5 Days have been removed – https://taxguru.in/corporate-law/employers-pay-pf-contributions-15th-grace-period-removed.html

Disclosure Summary is as follows:

1. Employee’s contribution – Same will be shown under Clause Due date will be 15^th of Following month. Relevant Section in regards to the same is 36(1)(va) of IT Act 1961 (Explained below).
2. Employer’s Contribution – Clause 26 – Section 43B – Due date for the same will be actual date of payment since deduction for the same will be allowed on the basis of actual payment. Deduction for the same will be allowed if the payment has been made on or before filling of due date.

Income Tax Section Reference:

Employee’s Contribution – “Section 36(1)(va) 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.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 thereunder or under any standing order, award, contract of service or otherwise;”

Hence reading section 36(1 )(va) and it’s explanation it is clear that this section covers only Employee’s contribution and also due date in relation to the Employee’s Contribution will be the date by which assesse is required to credit employee’s contribution i.e. on or before 15^th of Following Month.

Employer’s Contribution – “Section 43B Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of

(a)…

(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, or

(c)… to (e)…….

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.

Hence reading section 43B(b) it is clear that this section covers only Employer’s contribution and also due dated in relation to the Employer’s Contribution will be the date on which Assessee makes contribution to the account i.e. actual date of payment.