Supreme Court to examine tax treatment of delayed PF, ESI deposits

Top court agrees to hear plea on whether employees' PF and ESI contributions deposited late can still qualify for tax deduction if paid before I-T return filing

The Supreme Court has agreed to examine a long-standing dispute over whether delayed deposit of employees’ provident fund (PF) and Employees’ State Insurance (ESI) contributions can be allowed as a tax deduction if paid before the income tax return filing deadline.

 

A Bench of Justices JB Pardiwala and Sandeep Mehta issued notice on a petition filed by Woodland (Aero Club) Private Limited challenging a 2025 ruling of the Delhi High Court, which had decided the issue in favour of the tax department.

 

The Delhi High Court had held that employees’ PF and ESI contributions deposited by the employer after the statutory due date under the respective welfare laws are not eligible for deduction, even if paid before filing the income tax return.

 

The case raises a significant question under the Income Tax Act, 1961, on the interplay between Sections 2(24)(x), 36(1)(va) and 43B, and has wide implications for employers across sectors.

 

Employees’ contributions to PF and ESI are deducted by employers from salaries and are deemed to be income of the employer under Section 2(24)(x). Section 36(1)(va) allows a deduction for such amounts only if they are deposited within the due date prescribed under the relevant labour welfare laws.

 

The due date for depositing employee contributions to PF and ESI under Section 36(1)(va) of the Income Tax Act is the deadline prescribed by the respective welfare Acts — typically the 15th of the following month — and not the income tax return filing date. Payments made after this due date are disallowed as deductions under this provision.

 

However, several High Courts have previously held that Section 43B, which permits certain statutory payments as deductions if made before the due date for filing income tax returns, also applies to employees’ contributions, effectively relaxing the timeline.

 

The Delhi High Court, whose ruling is under challenge, took a contrary view. It held that employees’ contributions and employers’ contributions are fundamentally different in nature and must be treated separately. According to the High Court, employees’ contributions are held in trust by the employer and can be claimed as a deduction only if deposited within the statutory due date under PF and ESI laws, and not by relying on Section 43B.

 

The High Court further ruled that the non-obstante clause in Section 43B cannot override Section 36(1)(va), and distinguished the Supreme Court’s earlier decision in Alom Extrusions on the ground that it dealt with employers’ contributions and did not consider Sections 2(24)(x) and 36(1)(va).

 

The apex court also noted that various High Courts across the country have taken divergent positions on the issue.

 

“In view of the conflicting opinions,” the Bench said, it would examine the issue in detail and issued notice to the tax department, returnable in four weeks.