Employee PF/ESI contribution deductions require timely deposit under labour law, or the income-tax claim fails.

Employee PF/ESI contributions deducted from salaries are deemed income under section 2(24)(x) and, in a business context, deduction depends on strict compliance with section 36(1)(va). Where the employee share is deposited after the time prescribed under the relevant labour law, the statutory condition for deduction is not met and the claim fails. The note follows the Supreme Court ruling in Checkmate Services Pvt. Ltd., which requires timely deposit of employee contributions for allowance under the Income-tax Act.

---

---

Issues: Whether employee's contribution to PF/ESI, deducted from salaries but deposited after the due date prescribed under the relevant labour statutes, is allowable as a deduction in view of sections 2(24)(x), 28 and 36(1)(va) of the Income-tax Act, 1961.

Analysis: The amount collected from employees towards PF/ESI is deemed income under section 2(24)(x). In a business case, such deemed income falls to be considered under the business head, and deduction is available only if the statutory condition in section 36(1)(va) is satisfied. That provision allows deduction for employee contribution only when the amount is deposited within the time prescribed under the relevant PF/ESI law. The admitted late deposit therefore defeats the claim for deduction. The issue is also covered by the binding decision of the Supreme Court in Checkmate Services Pvt. Ltd., which requires strict compliance with section 36(1)(va).

Conclusion: The disallowance of the employee's PF/ESI contribution was correct and is upheld against the assessee.

---