Statutory Provision: Section 2(24)(x) – Definition of Income

 

 Section 2(24)(x) of the Income-tax Act includes in the definition of "income":

“Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or Employees’ State Insurance fund or any other fund for the welfare of such employees.”

 What It Means:

·         Any amount deducted by the employer from employees' salaries as a contribution to welfare funds like:

o    Provident Fund (PF)

o    Superannuation Fund

o    Employees State Insurance (ESI)

o    Labour Welfare Fund, etc.

➤ is treated as income in the hands of the employer when received.

 But When Is It Taxable?

Although this is treated as income, the allowability of deduction depends on whether the employer deposits the amount into the respective fund within the prescribed due date.

 Relevant Sections – Section 36(1)(va) vs. Section 43B

Provision

Section 36(1)(va)

Section 43B

Covers

Employee’s contribution to PF/ESI

Employer’s contribution to PF/ESI

Condition for deduction

Allowed only if deposited on or before the due date as per the relevant Act (e.g. EPF Act)

Allowed if paid before the due date of filing return under Section 139(1)

Late deposit

Not allowed as deduction

Allowed if deposited before filing ITR

Nature

Amount deducted from employee’s salary

Amount borne by employer himself

 Illustration:

·         Suppose an employer deducts ₹10,000 as PF from employee salary in April 2024 (for March 2024 salary).

·         Due date for PF deposit (as per EPF Act) = 15th May 2024.

·         If the employer deposits it:

o    On or before 15th May 2024 → Deduction allowed.

o    After 15th May 2024 (even if before filing ITR) → Deduction not allowed, but the amount is treated as income under Section 2(24)(x).

 Important Judicial Development:

·         In Checkmate Services Pvt Ltd v. CIT (Supreme Court, 2022):

o    The Supreme Court ruled that employee contributions to PF/ESI, if not deposited within the due date under respective Acts, shall not be allowed as a deduction, even if paid before the due date of filing ITR.

o    This overrules previous conflicting High Court decisions.

 Summary Table

Particulars

Employee Contribution

Employer Contribution

Taxable as income under

Section 2(24)(x)

Not treated as income

Deduction under

Section 36(1)(va)

Section 43B

Condition for deduction

Paid on or before due date under PF/ESI Act

Paid before filing ITR (Section 139(1))

Late payment effect

Disallowed

Allowed if paid before return due date

Judicial precedent

Checkmate Services (SC, 2022): strict on due dates

Supports relaxed deadline under Sec 43B

 Conclusion

Any amount received from employees towards funds like PF, ESI, etc., is considered "income" under Section 2(24)(x). However, deduction for the same is allowed only if the employer deposits it within the statutory due date of the respective welfare fund laws. Non-compliance leads to permanent disallowance and tax liability.

Comments

Post a Comment

Popular posts from this blog

Unified vs Dual GST Model

    Unified vs Dual GST Model Aspect Unified GST Model Dual GST Model Definition A single tax levied and collected by central authority Two-level tax : levied by both Centre and States Tax Authority Only central/federal government Both central and state/provincial governments Structure One law, one administration, one tax rate Separate levies: CGST + SGST (intra-state), IGST (inter-state) Compliance Easier, as businesses deal with only one authority More complex, requires dealing with both Centre and State authorities Input Tax Credit Seamless across the country ITC available separately under CGST & SGST; cross-utilization restricted Uniformity High – same rates across the country Rates can vary if states have flexibility (though GST Council striv...
Read more

200 questions with answers on basics of taxation

 Based on the content from the shared PDF titled “BASIC CONCEPT-TAX” , here are 100 interview questions with concise answers categorized for clarity: 🔹 SECTION A: BASIC CONCEPTS OF TAXATION (Q1–Q20) What is taxation? Taxation refers to the imposition of a financial charge by the government to fund public expenditures. Differentiate between direct and indirect taxes. Direct taxes are levied directly on income (e.g., income tax); indirect taxes are levied on goods/services (e.g., GST). Mention two examples of direct taxes. Income Tax Tax on Undisclosed Foreign Income and Assets Mention two examples of indirect taxes. GST Customs Duty Why are taxes levied? To generate revenue for government expenditure such as defense, education, and infrastructure. Who has the power to levy taxes in India? Both Central and State governments as per Article 246 of the Constitution. What are the three lists in the Seventh Schedule? Union List State List...
Read more

60 interview questions with answers on Income from Profits and Gains of Business or Profession (PGBP)

 Here are 60 interview questions with answers on Income from Profits and Gains of Business or Profession (PGBP) as per the Indian Income-tax Act, 1961 🔹 Section 1: Basic Concepts (Q1–Q10) 1.       Q: What is Income from PGBP? A: It includes income earned by carrying on any business or profession during the previous year. 2.       Q: Which section covers PGBP? A: Sections 28 to 44DB of the Income-tax Act, 1961. 3.       Q: What is 'Business' under the Income-tax Act? A: Any trade, commerce, manufacture, or adventure in the nature of trade. 4.       Q: What is 'Profession'? A: Vocation involving intellectual or manual skill, like doctors, lawyers, CAs. 5.       Q: What is the method of accounting under PGBP? A: Mercantile or cash system, regularly followed by the assessee. 6.       Q: Is speculative bus...
Read more