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CS Executive · Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Under section 37 of the Income-tax Act, 2025, Zenith Traders Pvt Ltd, following the mercantile system, incurred a liability of Rs 1,20,000 for employer's contribution to a provident fund in tax year 2026-27. It paid Rs 70,000 before the end of the tax year and the remaining Rs 50,000 after the year end but before the due date for filing the return under section 263(1) for that year. What deduction is allowed for tax year 2026-27 for this contribution?

Rs 1,20,000 is allowed for tax year 2026-27. Employer provident fund contributions fall under section 37(2), and section 37(3) allows the deduction in the year of liability if paid on or before the return due date under section 263(1), so both payments qualify.

  1. ARs 70,000, with Rs 50,000 allowed in the next tax year
  2. BRs 1,20,000Correct
  3. CRs 50,000
  4. DNil, as the contribution was not wholly paid within the year

Explanation

Employer's provident fund contributions are listed in section 37(2)(b). Under section 37(3), if paid after the year end but on or before the due date for filing the return under section 263(1), the deduction is allowed in the tax year the liability was incurred. So the entire Rs 1,20,000 (70,000 + 50,000) is allowed in 2026-27, and section 37(5) prevents a second deduction later.

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