Supreme Court To Examine If PF, ESI Deposits Late Under Welfare Laws but Paid Before IT Return Are Deductible

The Supreme Court has recently said that it will examine a long-standing dispute under the Income Tax Act on whether employees' provident fund and ESI contributions, deposited late under labour welfare laws, can still be allowed as deductions if paid before the income tax return due date.

A Bench of Justice J.B. Pardiwala and Justice Sandeep Mehta, while hearing a petition filed by Woodland (Aero Club) Private Limited, noted that High Courts across the country have taken conflicting views on the issue.

Recording this divergence, the court said, “In view of the conflicting opinion, as referred to above, we would like to look into this issue.” The Bench has issued notice to the tax department.

The dispute concerns Woodland (Aero Club) Private Limited, which had deducted employees' PF and ESI contributions from salaries but did not deposit them within the due dates prescribed under the PF Act and the ESI Act.

Although the amounts were paid after the prescribed due dates, they were paid before the deadline for filing the income tax return.

In its order dated September 8, 2025, the Delhi High Court ruled against Woodland and held that these delayed payments are not eligible for deduction under Section 36(1)(va) of the Income Tax Act.

Before the Supreme Court, Woodland pointed out that courts have taken two distinct approaches on the issue. One line of decisions, including those of the Gujarat, Madras, Kerala, and Madhya Pradesh High Courts, holds that employees' contributions are deemed income of the employer and can be deducted only if they are deposited within the statutory due dates prescribed under the relevant welfare laws. Under this view, payment before the return filing date is not sufficient.

The other line of decisions, including rulings of the Delhi, Bombay, Karnataka, Rajasthan, Punjab and Haryana, Allahabad, Calcutta and Patna High Courts, takes a contrary view. These courts have allowed the deduction where the delayed employees' contributions were deposited before the due date for filing the income tax return by applying the benefit of Section 43B of the Act.

The Supreme Court noted that employees' contributions deducted from wages are treated as income under the Act and continue to remain so unless credited to the relevant fund within the prescribed due dates.

At the same time, it noted that several High Courts have applied Section 43B to allow deductions where payment was made before the return filing deadline.

Given the divergence in judicial opinion, the bench said the issue requires consideration. The notice has been made returnable in four weeks.

For Petitioner: Senior Advocate S. Ganesh, Advocate-on-Record Diggaj Pathak, Advocates Anukalp Jain, Abhijit Mittal, Shweta Sharma, Trishita Bera, Nishtha Nanda, Shaivya Singh and Vaibhavi Pathak.