Deduction for Contributions to PF, ESIC, NPS, Gratuity, and Staff Welfare Fund: 1. Provident Fund (PF): Employer Contribution to PF: As per Section 36(1)(va), the employer's contribution to the Provident Fund (PF) is deductible from business income. However, this deduction is allowed only if the conRead more
Deduction for Contributions to PF, ESIC, NPS, Gratuity, and Staff Welfare Fund:
1. Provident Fund (PF):
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Employer Contribution to PF:
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As per Section 36(1)(va), the employer’s contribution to the Provident Fund (PF) is deductible from business income.
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However, this deduction is allowed only if the contribution is made on time, i.e., before the due date of filing the return of income.
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If the contribution is paid late, it is disallowed under Section 43B, even if it is paid before the due date of filing the return.
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Employee Contribution to PF:
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The employee’s contribution is deductible under Section 80C within the overall limit of ₹1.5 lakh for the financial year.
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2. Employees’ State Insurance Corporation (ESIC):
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Employer’s Contribution to ESIC:
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The employer’s contribution to ESIC is deductible under Section 36(1)(va) as a business expense. Similar to PF, the contribution must be made before the due date of filing the income tax return to qualify for the deduction.
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Employee’s Contribution to ESIC:
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The employee’s contribution to ESIC is not directly deductible from the individual’s income under the Income Tax Act.
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3. National Pension Scheme (NPS):
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Employer’s Contribution to NPS:
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As per Section 80CCD(2), the employer’s contribution to an NPS account of the employee is eligible for a deduction. This deduction is over and above the limit of ₹1.5 lakh under Section 80C.
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The contribution is allowed as a deduction up to 10% of the salary (Basic + DA).
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Employee’s Contribution to NPS:
- Section 36(1)(iv) of the Income Tax Act is the section under which an employer’s contribution to a recognized provident fund, superannuation fund, or pension scheme (such as NPS) is eligible for a deduction from the employer’s taxable income.
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The employee’s contribution to NPS qualifies for a deduction under Section 80CCD(1) to an Employee, subject to the overall limit of ₹1.5 lakh under Section 80C.
- In addition to this, Section 80CCD(1B) allows an additional deduction of ₹50,000 for contributions made to NPS, which is over and above the ₹1.5 lakh limit.
4. Gratuity:
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Employer’s Contribution to Gratuity Fund:
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The contribution made by the employer to a recognized Gratuity Fund is eligible for a deduction under Section 36(1)(v).
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The deduction is allowed for the amount that has been paid or provided for in the books of account in accordance with the actuarial valuation.
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Employee’s Gratuity:
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Employees do not get a deduction for gratuity contributions under the Income Tax Act. However, gratuity received is exempt under Section 10(10), subject to specific limits and conditions.
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5. Staff Welfare Fund:
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Expenditure on Staff Welfare:
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Contributions to a staff welfare fund by the employer are deductible under Section 37(1), provided the expenditure is wholly and exclusively incurred for the benefit of the employees and is not of a capital nature. This could include expenses on activities like health programs, recreational activities, or educational expenses for employees.
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Employee Contributions to Welfare Fund:
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Employee contributions to staff welfare funds are not deductible under the Income Tax Act, unless the contributions are for specific programs that qualify as deductions under other provisions.
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Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange. Treatment of STT under the Income Tax Act: As a Cost for CRead more
Securities Transaction Tax (STT) is levied on the purchase and sale of securities listed on a recognized stock exchange in India. The tax is paid on the transaction value of the securities, and it is deducted at source by the stock exchange.
Treatment of STT under the Income Tax Act:
As a Cost for Capital Gains Tax:
STT is often treated as a cost incurred for transactions relating to the sale of capital assets (like shares or securities).
If the securities transaction qualifies as a long-term or short-term capital gain (depending on the holding period), the STT paid on such transactions is not directly deductible as an expense under Section 37.
Inclusion in Cost of Acquisition:
While STT is not directly deductible as an expense, Section 48 of the Income Tax Act allows taxpayers to include STT as part of the cost of acquisition or cost of sale for the purposes of computing capital gains.
This is particularly beneficial when calculating long-term or short-term capital gains as the STT paid can reduce the taxable capital gain.
Section 48 provides:
No Direct Deduction Under Business Expenses:
If the transaction is a speculative or business-related transaction, the STT paid is still not deductible as a direct expense under Section 37. However, speculative losses can be set off only against speculative income.
Banking Transaction Tax (BTT):
The Banking Transaction Tax (BTT) was a tax introduced in the past on certain banking transactions such as withdrawals exceeding a certain amount. However, it is no longer applicable as per the current tax regime under the Income Tax Act, as the tax was repealed by the Finance Act, 2009.
For transactions that might still involve banking fees or charges, the general deduction for business-related expenses is applicable under Section 37(1), provided that:
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See lessThe transaction is wholly and exclusively incurred for the purpose of business.
The expenditure is not capital or personal in nature.