PF & ESI Late Deposit: Supreme Court Steps In – Big Relief Possible for Taxpayers
The long-running controversy surrounding deduction of employees’ contribution to PF and ESI has once again reached the Supreme Court, bringing renewed hope for thousands of taxpayers facing additions and disallowances across the country.
On 27th January 2026, the Supreme Court issued notice in an SLP filed by an assessee against disallowance of employees’ PF and ESI contribution deposited after the statutory due date but before filing of income tax return. The Court observed that there are two conflicting legal views on this issue and therefore decided to examine the matter in detail, issuing notice to the Income Tax Department
This development is extremely significant because for years taxpayers and tax officers have been locked in litigation over one simple question:
Is delayed deposit of employees’ PF/ESI allowable if paid before filing the income tax return?
Why This PF & ESI Issue Refuses to Die:
Under the Income-tax Act, employer contribution is governed by section 43B, which allows deduction if payment is made before the due date of filing return. Employees’ contribution, however, is covered by section 36(1)(va) read with section 2(24)(x), which treats such collections as income unless deposited within the due date prescribed under PF/ESI laws.
Over the years, High Courts across India have delivered contradictory judgments.
One set of courts held that employees’ contribution is fundamentally different from employer contribution and must be deposited strictly within PF/ESI due dates, otherwise deduction is lost.
Another set of courts took a more practical view and held that there is no real distinction between employer and employee contribution for this purpose, and both should be allowed if paid before the due date of filing the return under section 139(1).
This judicial tug-of-war has resulted in endless assessments, appeals, rectification applications, and miscellaneous petitions—keeping CAs busy and taxpayers anxious.
Supreme Court Recognises “Two Schools of Thought”
In its order dated 27th January 2026, the Supreme Court explicitly acknowledged that there are two schools of thought on interpretation of “due date” for employees’ PF and ESI contributions. Considering the conflicting judgments of various High Courts, the Court stated that it would like to look into the issue and accordingly issued notice to the Revenue
In simple words: the highest court of the land has admitted that the controversy is real and unresolved. That itself is half the battle.
Practical Advice for Taxpayers: Keep the Issue Alive
In my view, the recent development carries an important practical message.
1. Wherever additions or disallowances have been made on account of delayed deposit of employees’ PF or ESI, taxpayers should ensure that the issue is kept alive at appellate levels.
2. If your assessment is pending in appeal, do not withdraw this ground.
3. If your case is already decided against you, explore remedies wherever legally permissible. But one need to wait for the final verdict by Hon’ble SC.
4. If rectification or miscellaneous applications are being filed by the department in cases where relief was granted, this Supreme Court notice itself demonstrates that the issue is debatable and cannot be treated as a “mistake apparent from record”.
The message is loud and clear – DO NOT GIVE UP!
If the Supreme Court ultimately rules in favour of assessees, only those who have preserved their claims will be able to enjoy the benefit.
Impact on Departmental Rectification Applications
Recently, the Revenue has started filing miscellaneous applications seeking to recall appellate orders where PF/ESI additions were deleted, arguing that the matter stands settled against taxpayers. The Supreme Court’s present intervention effectively weakens that approach. Once the apex court itself admits that there are conflicting views and agrees to examine the issue, it automatically means the matter is debatable. A debatable issue can never be rectified as an apparent mistake. This is an important shield for taxpayers currently facing such rectification proceedings.
What Happens Next?
The Supreme Court has issued notice to the Income Tax Department and the matter will now be argued in detail. A final verdict will hopefully bring much-needed clarity and uniformity across India. Until then, uncertainty continues—but with a silver lining.
What About Checkmate Services? Why This Supreme Court Notice Still Matters
Many readers may immediately recall the Supreme Court’s 2022 decision in Checkmate Services (P) Ltd., where it was held that employees’ contribution to PF & ESI must be deposited within the statutory due date under the respective welfare laws, failing which deduction is not allowable—even if payment is made before filing of return.
Naturally, a question arises: if Checkmate had already decided the issue, why has the Supreme Court now issued notice again?
The answer lies in the present order dated 27th January 2026.
In this order, the Supreme Court has expressly recorded that there are two schools of thought on interpretation of “due date” for employees’ PF/ESI contribution and has listed several High Court judgments on both sides. Thereafter, the Court has stated that, in view of conflicting opinions, it would like to look into the issue and accordingly issue notice to the Revenue.
Importantly, the order does not even refer to Checkmate Services. This itself is significant.
Had the Court considered the controversy finally settled by Checkmate, there would have been no occasion to observe “two views” or admit the SLP. The very fact that notice has been issued shows that the Supreme Court is willing to re-examine the entire controversy.
This has two immediate practical consequences: First, taxpayers facing disallowance of employees’ PF/ESI contribution should continue to contest the issue at appellate levels and ensure the ground remains alive. If the Supreme Court ultimately takes a different view, only those who have preserved their claim will benefit.
Second, this development substantially weakens the Revenue’s recent practice of filing miscellaneous or rectification applications in cases where PF/ESI additions were deleted on appeal. Once the Supreme Court itself acknowledges conflicting views and agrees to adjudicate the issue, it clearly becomes a debatable question of law. A debatable issue can never be treated as a “mistake apparent from record”. In short, despite Checkmate, the controversy is very much back on the Supreme Court’s table.
Final Thoughts
PF and ESI compliance is already a tightrope walk for businesses dealing with cash flows, labour issues, and monthly statutory deadlines. Turning every minor delay into permanent tax disallowance has always felt excessively harsh.
Now that the Supreme Court has formally stepped in, taxpayers finally have reason to be cautiously optimistic.
For the moment, the golden rule is simple: wherever PF/ESI late deposit disallowance exists, keep the issue alive. Tomorrow’s Supreme Court judgment could convert today’s addition into tomorrow’s refund.
Sometimes in taxation, patience pays interest—though unfortunately not under section 244A.
The copy of the order is as under:
VKR08092025ITA2672023_185606
