Section 36(1)(iv) of the Income Tax Act, 1961 allows an employer to claim a deduction for its contribution to a recognized provident fund (RPF) or an approved superannuation fund (ASF). The deduction is allowed up to a maximum of 15% of the salary of the employee.

The salary for this purpose includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

The contribution under income tax must be made to a fund that is recognized by the Central Government. The list of recognized provident funds and approved superannuation funds is published by the Central Government in the Official Gazette.

The deduction of income tax is allowed on a payment basis, i.e., the employer can claim the deduction in the year in which the contribution is actually paid to the fund.

FAQ QUESTIONS

• What is a recognized provident fund (RPF)?

An RPF is a retirement savings of income tax scheme set up by an employer for its employees. The money contributed to the RPF is tax-deductible for the employer and the employee, and it grows tax-free until the employee withdraws it.

• What is an approved superannuation fund (ASF)?

An ASF is a retirement savings of income tax scheme that is similar to an RPF, but it is set up by an insurance company or a trust. The money contributed to an ASF is also tax-deductible for the employer and the employee, and it grows tax-free until the employee withdraws it.

• What are the limits on employer’s contribution to RPF and ASF under Section 36(1)?

The maximum amount that an employer can contribute  under income tax to an RPF or ASF for an employee is 12% of the employee’s salary. However, there are some exceptions to this limit. For example, the maximum contribution is 15% of the employee’s salary if the employer is a government entity or a company that is engaged in infrastructure development.

• When can an employer claim a deduction for its contribution to RPF or ASF under Section 36(1)?

The employer under income tax can claim a deduction for its contribution to RPF or ASF in the year in which it is actually paid. However, there is a condition. The contribution must be made before the due date for filing the income tax return for that year.

• What are the documents required to claim a deduction for employer’s contribution to RPF or ASF under Section 36(1)?

The following documents are required to claim a deduction for employer’s contribution to RPF or ASF under Section 36(1):

* A certificate from the in come tax RPF or ASF administrator stating the amount of contribution made by the employer.

* A copy of the income tax employee’s salary slips for the relevant year.

* A copy of the income tax return for the relevant year.

• What are the penalties for non-compliance with Section 36(1)?

If an employer under income tax fails to make the required contribution to an RPF or ASF, it may be liable to pay a penalty of up to 50% of the amount of the default.

CASE LAWS

• Checkmate Services Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax, Mumbai (2016) 380 ITR 319 (SC): This case under income tax was about the deduction of contributions made by an employer to the Employees’ Provident Fund (EPF) on behalf of its contract laborers. The Supreme Court income tax held that the employer was entitled to a deduction under section 36(1) (VA) of the Income Tax Act for the contributions made to the EPF on behalf of its contract laborers, even though the contributions were not deducted from the salaries of the contract laborers.
• CIT v. V.S.S.N. Textiles Ltd. (2014) 365 ITR 508 (Mad): This case of income tax was about the deduction of contributions made by an employer to a recognized provident fund (RPF). The Madras High Court held that the employer under income tax was entitled to a deduction under section 36(1)(iv) of the Income Tax Act for the contributions made to the RPF, even though the contributions were made in excess of the statutory limits.
• CIT v. National Engineering Industries Ltd. (2009) 310 ITR 283 (Cal): This case under income tax was about the deduction of contributions made by an employer to an approved superannuation fund (ASF). The Calcutta High Court held that the employer was entitled to a deduction under section 36(1)(iv) of the Income Tax Act for the contributions made to the ASF, even though the contributions were made in excess of the statutory limits.

These are just a few of the many case laws on employers’ contribution to income tax recognized provident fund and approved superannuation fund under section 36(1) of the Income Tax Act, 1961. It is important to note that the law in this area is constantly evolving, so it is always advisable to consult with a tax advisor to ensure that you are taking advantage of all the deductions that you are entitled to.

In addition to the above case laws, here are some other relevant provisions of the Income Tax Act, 1961:

• Section 2(24)(x): This section defines the term “income tax” to include any sum received by an employer from its employees as payment to any superannuation fund, pension schemes fund, a fund created under the terms of the ESI Act, or any other fund for the benefit of such employees.
• Section 36(1)(iv): This section allows a income tax deduction in respect of any sum paid by the employer by way of contribution towards a recognized provident fund subject to limits prescribed in the recognition of the provident fund accorded by the Chief Commissioner or Commissioner of Income Tax.
• Section 36(1) (VA): This section allows a income tax deduction in respect of any sum received by the assesses as a contribution from employees to their welfare fund, if the same is deposited with the provident fund within due date.
• Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax, Mumbai (2016) 380 ITR 319 (SC): This case was about the income tax deduction of contributions made by an employer to the Employees’ Provident Fund (EPF) on behalf of its contract laborers. The Supreme Court held that the employer was entitled to a deduction under section 36(1) (VA) of the Income Tax Act for the contributions made to the EPF on behalf of its contract laborers, even though the contributions were not deducted from the salaries of the contract laborers.
• CIT v. V.S.S.N. Textiles Ltd. (2014) 365 ITR 508 (Mad): This case was about the income tax deduction of contributions made by an employer to a recognized provident fund (RPF). The Madras High Court held that the employer was entitled to a deduction under section 36(1)(iv) of the Income Tax Act for the contributions made to the RPF, even though the contributions were made in excess of the statutory limits.
• CIT v. National Engineering Industries Ltd. (2009) 310 ITR 283 (Cal): This case was about the deduction of income tax contributions made by an employer to an approved superannuation fund (ASF). The Calcutta High Court held that the employer was entitled to a deduction under section 36(1)(iv) of the Income Tax Act for the contributions made to the ASF, even though the contributions were made in excess of the statutory limits.

These are just a few of the many case laws on employers’ contribution to recognized provident fund and approved superannuation fund under section 36(1) of the Income Tax Act, 1961. It is important to note that the law in this area is constantly evolving, so it is always advisable to consult with a tax advisor to ensure that you are taking advantage of all the deductions that you are entitled to.

In addition to the above case laws, here are some other relevant provisions of the Income Tax Act, 1961:

• Section 2(24)(x): This section defines income tax the term “income” to include any sum received by an employer from its employees as payment to any superannuation fund, pension schemes fund, a fund created under the terms of the ESI Act, or any other fund for the benefit of such employees.
• Section 36(1)(iv): This section allows a deduction of income tax in respect of any sum paid by the employer by way of contribution towards a recognized provident fund subject to limits prescribed in the recognition of the provident fund accorded by the Chief Commissioner or Commissioner of Income Tax.
• Section 36(1) (VA): This section allows a deduction of income tax in respect of any sum received by the assesses as a contribution from employees to their welfare fund, if the same is deposited with the provident fund within due date.
• Checkmate Services Pt. Ltd. v. Commissioner of Income Tax, Mumbai (2016) 380 ITR 319 (SC): This case was about the deduction of income tax contributions made by an employer to the Employees’ Provident Fund (EPF) on behalf of its contract laborers. The Supreme Court held that the employer was entitled to a deduction under section 36(1)(VA) of the Income Tax Act for the contributions made to the EPF on behalf of its contract laborers, even though the contributions were not deducted from the salaries of the contract laborers.