Clause 20 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 20(a) reports bonus or commission paid to an employee that was otherwise payable as profits or dividend; clause 20(b) reports each employee fund contribution under section 36(1)(va) with its due date and its actual date of payment.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026.
Clause 20(a) — bonus or commission in lieu of profits
Paragraph 32.1: section 36(1)(ii) provides for deduction of any sum paid to an employee as bonus or commission for services rendered where such sum would not have been payable to him as profit or dividend if it had not been paid as bonus or commission.
In other words, if bonus or commission is in the nature of profit or dividend, it may not normally be allowable as a deduction unless such payment is wholly and exclusively made to the employee — Shahzada Nand & Sons v. CIT [1977] 108 ITR 358 (SC).
Paragraph 32.2 tells the auditor both what to do and what not to do: the requirement is only disclosure of the amount, and the tax auditor is not expected to express his opinion about its allowability or otherwise. What he should do is verify the employment or contract details of the employees so as to ascertain the nature of payments.
The classic case is a payment to a working shareholder-director or a partner-employee described as commission, in an amount that tracks the profit rather than the service. The test is whether the sum would otherwise have been payable as profits or dividend — which is answered from the shareholding, the appointment terms and the basis on which the amount was computed, not from the ledger caption.
Clause 20(b) — employees' contributions to welfare funds
Paragraph 32.3: section 36(1)(va) permits deduction of any sum received by the assessee from his employees to which section 2(24)(x) applies, if it is credited by the assessee to the account of the employees in the relevant statutory fund on or before the due date.
Paragraph 32.4: section 2(24)(x) brings within income any sum received from employees as contributions to any provident fund or superannuation fund or ESI Fund or any other fund for employees' welfare. Explanation 5 to section 43B provides that section 43B is not applicable to a sum received from employees to which section 2(24)(x) applies.
Checkmate Services
The Supreme Court in Checkmate Services (P.) Ltd. v. CIT-1, Civil Appeals Nos. 2830 to 2833 of 2016 and 159 of 2019, held that the non obstante clause in section 43B could not apply to amounts held in trust — as employees' contributions are, being deducted from their income and held in trust by the employer under section 2(24)(x). That clause therefore does not absolve the employer from its liability to deposit the employees' contribution on or before the due date as a condition for deduction.
Employer's contributions fall under section 43B and are allowed if paid by the return due date. Employees' contributions do not. After Checkmate Services, a contribution deposited even a day after the fund's own due date is disallowed under section 36(1)(va) and does not come back. That is why clause 20(b) asks for the due date and the actual date of payment as separate columns, for every month and every fund.
How the due date is fixed
Paragraph 32.5: Explanation 1 to section 36(1)(va) defines "due date" as the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder, or under any standing order, award, contract of service or otherwise — that is, the date required by the applicable law. If any extension is granted by the respective authorities, it shall be considered in determining the due date.
Explanation 2 clarifies that section 43B shall not apply, and shall be deemed never to have applied, for the purposes of determining the due date under section 36(1)(va).
What the auditor does
Paragraph 32.6: the tax auditor should:
- get a list of the various contributions recovered from employees within the scope of the clause and the date on which they are deposited;
- verify the documents relating to provident funds and other welfare funds;
- verify the agreement under which employees have to make contributions;
- review the ledger account of contributions from employees; and
- verify the due dates and actual dates of payment against the available evidence.
Given the volume, the auditor can apply test checks and compliance tests to satisfy himself that the system of recovery and remittance is proper. The details required are the nature of fund, the amount deducted, the due date for payment, the actual amount paid and the actual date of payment to the concerned authorities, in respect of provident fund, ESI fund or other staff welfare fund.
Paragraph 32.7 recommends the working paper formats — a two-column table of description and amount for clause 20(a), and for clause 20(b) the six-column table matching the e-filing utility: serial number; nature of fund; sum received from employees; due date for payment; the actual amount paid; the actual date of payment to the concerned authorities.
The TAQRB observations on clause 20
- "Incomplete reporting was noticed under Clause 20(b), including non-reporting of ESI contributions which was clearly reflected in the Annual report of the company."
- "Incorrect reporting of due dates for statutory fund payments."
Both are testable from documents already in the file. The first is a completeness failure — the annual report disclosed the ESI liability that clause 20(b) omitted. The second is a mapping failure: each fund has its own statutory due date, and a single generic date across provident fund, ESI and other welfare funds will be wrong for at least one of them.
Worked example
| Fund | Sum received | Due date | Paid | Actual date | Effect |
|---|---|---|---|---|---|
| Provident fund, April | Rs 6,20,000 | 15 May | Rs 6,20,000 | 14 May | Allowable |
| Provident fund, September | Rs 6,40,000 | 15 October | Rs 6,40,000 | 18 October | Disallowed — section 43B cannot rescue it |
| ESI, September | Rs 78,000 | 15 October | Rs 78,000 | 15 October | Allowable |
| Superannuation fund, quarterly | Rs 3,00,000 | Per the trust deed | Rs 3,00,000 | Within time | Allowable |
All four rows are reported at clause 20(b) — the clause is a disclosure of every contribution, not a list of the late ones.
Audit checklist
- Report every fund and every period at clause 20(b), not only the defaults.
- Reconcile the fund list against the annual report and the statutory dues schedule — the ESI omission the TAQRB found.
- Take the due date from the fund's own law, including any extension granted, and never from section 43B.
- Verify actual dates from challans and bank statements.
- Apply test checks and compliance tests to the recovery and remittance system.
- For clause 20(a), examine employment and contract terms and the basis of computation.
- Remember clause 20(b) is a disclosure; do not express an opinion on allowability.
Common mistakes
- Reporting only the delayed contributions at clause 20(b).
- Using the section 139(1) return date as the due date.
- Applying one due date across all funds.
- Omitting ESI or other welfare funds disclosed elsewhere in the accounts.
- Treating employees' contributions as covered by section 43B after Checkmate Services.