Budget 2021 has proposed to dis-allow deduction of employee’s PF contribution as an expense to employers if they do not deposit it in time. This is expected to put pressure on employers to deposit the employee’s provident fund contributions on time. To the extent that this ensures employers do not misuse or divert money meant for Employees’ Provident Fund it will help increase surety of getting their PF money from the employers. Further, this will also ensure that there is no loss of interest for the employees on such contributions.
As per the budget speech, “We have noticed that some employers deduct the contribution of employees towards Provident funds, superannuation funds, and other social security funds but do not deposit these contributions within the specified time. For the employees, this means a loss of interest or income. In cases where an employer later becomes financially unviable, non-deposit results in a permanent loss for the employees. In order to ensure that employees’ contributions are deposited on time, I reiterate that the late deposit of employee’s contribution by the employer will not be allowed as deduction to the employer.”
As per the explanatory memorandum of the Budget 2021, such changes will come into effect from April 1, 2021 and will apply to the companies/employers filing ITR for FY 2020-21.
Shalini Jain, Tax Partner – People Advisory Services, EY India says, “This new provision will provide more security to employees with respect to their own contributions – it will ensure that payment of social security dues become one of the top most priority for companies in view of consequential loss of corporate tax deduction if the employees’ contributions are not paid within the prescribed timelines.”
How interest is calculated on EPF deposits
Under the EPF scheme, for the month of April 2020, the employer has to deposit EPF contributions by May 15, 2020. Once the money has been deposited into the account by the employer, the interest accrual on the said contribution will start from June 1, 2020.
