Supreme Court resolves judicial conflict on the due date of payment of employees’ contributions 

This Tax Alert summarizes a recent ruling of Three-Judge Bench of the Supreme Court (SC) in a batch of appeals[1], with Checkmate Services P. Ltd. (Taxpayer) v. CIT as the lead matter. The issue before the SC was interpretation of due date for payment of employees’ contribution to Social Security Schemes (SSS) like Provident Fund, Employees’ State Insurance, etc. to qualify for tax deduction under Indian Tax Law (ITL). 

There was judicial conflict of view between different High Courts (HC) on the issue. Majority of the HCs[2] (majority view) held in favor of taxpayers that the due date for deposit of employees’ contribution is same as due date for deposit of employer’s contribution i.e., the contributions are eligible for deduction in the relevant tax year itself if they are actually paid before the due date of filing return of income (ROI) for the relevant tax year; else, they are allowable in the year of actual payment. On the other hand, Gujarat and Kerala HCs took contrary view (minority view) favoring tax authority that the due date for deposit for employees’ contribution is the statutory due date under the relevant statutes governing the SSS (statutory due date) and thus, if not paid within statutory due date, the taxpayer permanently forfeits the deduction. 

Upholding the minority view, the SC, in the present case, ruled in favour of tax authority and held that employees’ contributions are deductible if paid before the statutory due date. 

The SC ruling effectively endorses the amendments made by Finance Act (FA) 2021 with effect from tax year 2020-21 in line with the minority view and makes it clarificatory in nature having retrospective effect to all past tax years. 

[1] [TS-791-SC-2022]
[2] Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi