Payroll management is not just computing the salaries payable to the employees. It also involves computation of income tax deductions, handling contentious issues like supporting documents for medical reimbursements, conveyance expenses, HRA, PF/ESI, leave travel assistance etc. A lot of misunderstanding arises on account of these issues.
Every employer is required to comply with the laws applicable in relation to the employees hired in their organization. Few of compliances under such laws are outlined hereunder:
Provident Fund is the fund which is composed of the contributions made by the employee during the time he has worked in an organization along with an equal contribution made by his employers. It is calculated as a percentage of the employee’s salary and is returned to him on his retirement or on resignation, whichever is earlier.
In India the provident fund is administered by the Employees' Provident Fund Organization (EPFO) under the Ministry of Labor and Employment. Every establishment employing twenty or more persons is mandatorily required to maintain such fund and comply with all provisions applicable under the Act.
Certain periodical returns in respect of the provident fund contributions made are required to be filed by the employers with the prescribed authorities.
Employees’ State Insurance (ESI)
Employees’ State Insurance Scheme of India (ESI Scheme) is regulated by Employees’ State Insurance Act, 1948. It is a multidimensional social security system tailored to provide socio-economic protection to worker population and their dependants covered under the scheme. Besides full medical care for self and dependants, that is admissible from day one of insurable employment, the insured persons are also entitled to a variety of cash benefits in times of physical distress such as sickness, temporary or permanent disablement etc. resulting in loss of earning capacity, etc. Also the dependants of insured persons who die in industrial accidents or because of employment injury or occupational hazard are entitled to a monthly pension called the dependants benefit.
Every employer to whom the ESI scheme is applicable is required to comply with the provisions prescribed therein. Our team can assist you by providing professional advice in relation to all such laws and assist you in complying with the procedural requirements from time to time.
Gratuity is a lump sum payment made by the employer to the employee as a mark of recognition of the service rendered by him when he retires or leaves service after a continuous period of service of at least 5 years. Gratuity is governed under the Payment of Gratuity Act, 1972. The Act is applicable to every factory, shop or an establishment in which ten or more persons are employed, or were employed on any day of the preceding twelve months.
An employee is eligible for receiving gratuity payment only after he has completed five years of continuous service. The condition of five years is not necessary if the termination of the employment of an employee is due to death or disablement. Gratuity is payable @ 15 days wages for every year of completed service or part thereof in excess of six months. In case of seasonal establishment, gratuity is payable @ 7 days wages for each season. The maximum amount of Gratuity payable is Rs. 3.5 Lakhs.
Various obligation of the employer have been laid out under the Gratuity Act such as providing a notice of opening of establishment, payment of gratuity upon determination of services of the employee, obtaining insurance as prescribed therein, etc. Our team of trained professionals can provide you advice on various compliances required under the Act and assist you with the procedural requirements prescribed therein.
Withholding Taxes on Salary (Tax Deducted at Source or TDS)
TDS on Salary
Section 192 of the I.T.Act, 1961 provides that every person responsible for paying any income which is chargeable under the head ‘salary’, shall deduct income tax on the estimated income of the assessee under the head salaries. The tax is required to be calculated at the average rate of income tax as computed on the basis of the rates in force.
The deduction is to be made at the time of the actual payment. However, no tax is required to be deducted at source unless the estimated salary income exceeds the maximum amount not chargeable to tax applicable in case of an individual during the relevant financial year. The tax once deducted is required to be deposited in government account and a certificate of deduction of tax at source (also referred as Form No.16) is to be issued to the employee. This certificate is to be furnished by the employee with his income tax return after which he gets the credit of the TDS in his personal income tax assessment. Finally, the employer/deductor is required to prepare and file quarterly statements in form No.24Q with the Income Tax Department.
When is the TDS required to be deducted?
The employer is required to deduct tax at source at the time of actual payment of salary to the employee. Unlike the provisions of TDS pertaining to payments other than salary, where the obligation to deduct tax arises at the time of credit or payment, whichever is earlier, the responsibility to deduct tax from salaries arises only at the time of payment. Thus, when advance salary and arrears of salary has been paid, the employer has to take the same into account while computing the tax deductible.
Deposit of tax in Government account
As per Section 200 of the IT Act, the person responsible for deducting tax from payment made to an employee is also required to deposit the tax so deducted in Government account within the prescribed time and in the manner prescribed.