Firms can't claim deduction if social security deposits are delayed

The government on Monday said the employers who delay the deposit of workers' share of social security contributions like employees' provident fund will not be able to claim the amount as deduction from their income.

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An amendment in this regard is proposed in the Finance Bill 2021, to ensure that firms deposit the social security contributions of their employees like Employees' State Insurance (ESI) well in time.

Besides it is proposed to tax interest earned on annual provident fund contribution of over Rs 2.5 lakh from April 1, 2021.

At present there is no tax on interest earned on provident fund deposits.

The government has also proposed to set up a web portal to map informal sector workers, like gig and platform workers, to provide them various benefits like health, credit and food etc.

In her budget speech, Finance Minister Nirmala Sitharaman said in Lok Sabha, "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."

She was of the view that 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.

The minister told the House, "In order to ensure that employees' contributions are deposited on time, I reiterate that the late deposit of employees' contribution by the employer will not be allowed as deduction to the employer."

These amendments will take effect from April 1, 2021 and will accordingly apply to the assessment year 2021-22, and subsequent assessment years as per the Finance Bill 2021.

According to the speech document, in order to rationalise tax exemption for the income earned by high-income employees, it is proposed to restrict tax exemption for the interest income earned on the employees' contribution to various provident funds to the annual contribution of Rs 2.5 lakh.

This restriction shall be applicable only for the contribution made on or after April 1, 2021.

Under the social security schemes run by the retirement fund body EPFO, employers as well as employees contribute 12 per cent of basic wages each towards social security schemes run by it.

These social security schemes provide the benefit of provident fund, group insurance and pension to organised sector workers which mainly include private and public sector undertakings' staff.

Similarly, for the ESI scheme, employees deposit 0.75 per cent of the wages and that of employer's is 3.25 per cent of the wages.

The ESI is a health insurance scheme provided mainly to industrial workers.

S P Tiwari General Secretary Trade Union Co-ordination Centre said this is a good move in the direction of promoting fairer employment. But the government should also consider stopping all incentives to defaulter firms who don't pay their or employees' contribution towards social security schemes (EPFO, ESI).

On taxing provident fund interest income, he said that he opposes any move to tax interest income of any social security contribution in principle because higher income earning individuals pay higher income tax eventually.

Tiwari who is also on the board of Employees' State Insurance Corporation (ESIC) opined that setting up a portal for mapping informal sector workers is also a good initiative as it was necessary to provide over 40 crore unorganised workers the benefit of various social security schemes and government schemes.

The finance minister has also announced to set up a dedicated web portal for collecting information of informal sector workers to provide them benefits of various government schemes like health, credit, food and other benefits.

The minister also said that for the first time globally, social security benefits will extend to gig and platform workers.

However, she did not elaborate whether it would be provided through the ESIC or any other agency or body.

She also apprised the House that 'minimum wages will apply to all categories of workers, and they will all be covered by the ESIC. Women will be allowed to work in all categories and also in the night-shifts with adequate protection.

'At the same time, compliance burden on employers will be reduced with single registration and licensing, and online returns.'

The gig and platform workers are those who are engaged by various e-commerce businesses like Uber, Ola, Swiggy and Zomato.

These workers are not paid salaries and hence deprived of social security benefits like provident fund, group insurance and pension.

India has a total workforce of over 50 crore including 40 crore unorganised sector which include farm and rural workers.

The finance minister also noted the labour reforms done by the government where the majority of labour laws were concised into four broad codes on wages, industrial relation, social security and occupational safety, health & working conditions.