Budget eases PF, ESI deduction rules for employers, allows relief for delayed deposits
At present, employers can claim deduction for employees’ PF and ESI contributions only if the amounts are deposited within the strict timelines prescribed under the respective welfare laws.
Even a minor delay permanently disqualifies the expense for tax purposes, a position that had been settled by the Supreme Court (SC) after years of litigation
Under the proposed amendment to Section 29 of the Income-tax Act, 2025, the definition of “due date” for claiming deduction of employees’ contributions is set to be aligned with the due date for filing the income-tax return by the employer entity.Explaining the shift, Deepak Joshi, a SC advocate said employers are currently held to a rigid standard.
“The law, as interpreted by the SC, meant that if employee contributions were not deposited within the due date under the relevant welfare fund laws, no deduction was allowed — even if the payment was made before filing the income-tax return,” he said.“The proposed amendment substitutes the definition of ‘due date’ to mean the due date of filing the income-tax return.
The positive impact is that even if there is a slight delay in depositing employees’ contributions, so long as the amount is deposited before the return-filing deadline, the employer will be allowed the deduction,” Joshi added.
Experts view the move as part of the government’s broader effort to soften compliance rigidities and reduce avoidable litigation.
