Budget 2021: Employers To Lose Deduction For Employee’s Contribution To EPF If They Don’t Deposit On Time

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.

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.

Do keep in mind that the rules for delay in EPF contribution by the employer and non-deposit of contribution are different. Even if an employer makes a delayed deposit of EPF contribution for April 2020, the employee will still receive interest from June 1, 2020. Whereas if the employer defaults in deposit of EPF contributions due to financial or other issues, and does not make a deposit at all then as there is no credit in employee’s account for the said period, there will be no interest on contributions due for the said period. However, on accumulated balance it will continue.

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