What is Payroll?

Payroll is calculation of payments to employees for their work in the company which can be based on time or productivity, calculation of benefits, and statutory deductions. Payroll is to be processed by each company periodically like weekly, bimonthly, monthly or daily (for daily wage workers).

Payroll calculation is a complicated process that varies from company to company. Each company maintain its own payroll structure consisting of various payroll components that may be unique to that company only. In addition, many location specific laws such as labor welfare act, Payment of salary and wages act, and the Minimum wages act affect the payroll calculations. Under minimum wages act, the employees need to be given some mandatory salary components such as Basic, DA, and HRA.

Payroll processing involves accurate payroll calculations, disbursal, payslip generation, and managing payroll taxes and record keeping compliance. All these activities cannot be rushed into and must be performed using a payroll software to ensure that employees do not get erroneous paychecks and all statutory compliance’s are met.

What is Salary?

Salary is regular wages received by an employee from an employer on a weekly, biweekly, or monthly basis. Salaries also include employee benefits such as health and life insurance, savings plans, and Social Security.

What is Allowance?

Allowances are fixed sums of money paid regularly in addition to salary. There are three types of allowance.

  • Taxable Allowance,
  • Partially Exempted Allowance
  • Fully Exempted Allowance

Taxable Allowances: All salary components given as Allowances, expect Partially & Fully Exempted Allowance

Partially Exempted Allowances: Entertainment allowance, House Rent Allowance, Education Allowance, Children Hostel Allowance, Transport Allowance etc

Fully Exempted Allowances: Conveyance Allowance,Travelling Allowance, Daily Allowance, Research Allowance, Helper Allowance, Uniform Allowance etc. In addition, any allowance paid or allowed outside India by the Government to an Indian Citizen, for rendering services outside India, is wholly exempt from tax.

What are the statutory deductions from salary?

PF, ESI, PT and TDS are considered as Statutory Deductions that are to be deducted from salary.

What is Pay Slip?

A document provided the employer to the employee that records the employee’s earnings, deductions, tax etc. used in calculating and disbursing the pay-check. Or in simpler words, it is a basic reference document for information and transparency on the monthly financials between employee and employer.

What is Gratuity?

Gratuity is a retirement benefit given by an employer to an employee. It is paid for employees at the time of leaving, as a gratitude for the service employee has rendered, provided that the employee has served the company for more than 5 years. Gratuity is paid for a retiring employee as well as the employee who is leaving after completing 5 years of service in a company.

How is Gratuity Calculated?

Any gratuity received under the Payment of Gratuity Act is exempt to the extent of least of the following three:

  • 10,00,000.
  • (Salary/26) * 15 * last drawn salary for every completed year of service or part of the year in excess of six months.
  • Gratuity amount actually received.

Salary for this purpose means basic salary and dearness allowance.

What is standing instruction?

Standing instruction is an order to pay an amount on behalf of another person. In the payroll perspective, a standing instruction is an order given by employee to their employer for making a payment. The employee can give a standing instruction to the employer for repayment of loan, advance, insurance etc. to the organization or any third party.

What is TDS?

TDS means Tax Deducted at Source. In the payroll perspective, deducting the income tax of employee to be paid to the government from employee’s salary is TDS. The employer has to deduct and remit the full tax arising out of employee’s salary. For this, employer has to make the estimation at the beginning of the financial year as to what would be the probable income and income tax for each employee based on the earnings, deductions and investments proposed to be made by such employees. This total tax is to be deducted from their salaries over the period of 12 months between April and March.

What is TAN Number?

TAN is Tax Deduction & Collection Account Number. For filing TDS returns, every organization must have a TAN Number.

What is PAN Number?

Permanent Account Number or PAN is a unique identification number by which the Income Tax Department identifies any tax assessee. PAN consists of ten alpha numeric characters which identifies the individual with the department. This is a mandatory requirement before submitting the annual income statement to the Income Tax Department. Every salaried employee has to submit their PAN to the employer for proper tax deduction.

What is the current Income Tax Slabs (FY 2018-19)?

Income Tax Slabs (FY 2018-19)
upto 60 years
Senior citizen
between 60 & 80 years
Senior citizen
above 80 years
Nil 0 – 2,50,000 0 – 3,00,000 0 – 5,00,000
5% 2,50,000 – 5,00,000 3,00,000 – 5,00,000 NA
20% 5,00,000 – 10,00,000 5,00,000 – 10,00,000 5,00,000 – 10,00,000
30% 10,00,000 and above 10,00,000 and above 10,00,000 and above

How to calculate House Rent Allowance (HRA) Exemption?

House Rent Allowance (HRA) is received as part of salary during the year. The calculation of HRA exemption includes the below given 3 steps. HRA allowance actually received

  • 40% of Salary (Basic + DA) (Note: 50% in case of Metro city)
  • Rent paid –10% Salary (Basic + DA)
  • Actual HRA

Least of the following three amounts is exempted from tax and the remaining is taxed.

What is Transport Allowance / Conveyance Allowance? How is it taxed?

Transport Allowance / Conveyance Allowance is the Allowance given for traveling from residence to work place. This is exempt up to Rs 1600 per month and Rs. 3200 in case of Physically Handicapped employees.

What is Children Education Allowance? How is it taxed?

Children Education Allowance is Allowance given for educational purpose of children. This is exempted up to Rs. 100/- per month per child maximum for two children.

What is Children Hostel Allowance? How is it taxed?

Children Hostel Allowance is Allowance given for educational boarding purpose of children. This is exempted up to Rs. 300/- per month per child maximum for two children.

What is Form 16?

Form 16 is the certificate issued by the employer to their employees for the Tax deducted from the salary income in the form of TDS. This is issued yearly and is required to file individual Tax Returns.

What is Perquisite and how it is taxed?

Perquisites are emoluments or benefits received from an employer, in addition to salary. For example, Rent-free accommodation, Free electricity, Gas and Water supply, Free domestic servant provided/paid by the employer.

What are the various deductions allowed under Chapter VI A?

Section Purpose Limit
80C General Saving & Investments Rs. 1,50,000
80D Premium paid towards Medical Insurance Self: Rs. 25,000, Parents: Rs. 25,000
(Rs. 30,000 for senior citizen)
80DD Medical treatment for Handicapped Dependant Rs. 50,000 for disability below 80%
Rs. 1,25,000 for disability above 80%
80DDB Medical treatment for Specified Illness/Diseases Rs. 40,000 for general category
Rs. 60,000 for senior citizen
Rs. 80,000 for very senior citizen
80E Interest on Education Loan No limit, Complete interest paid is exempt
80U Income from Persons with Disabilities Rs. 75,000 for disability below 80%
Rs. 1,25,000 for disability above 80%
80G Donations No limit, Complete Donation with valid documents is exempt

What are the various deductions allowed under 80C?

Under section 80C, an employee is entitled to deductions for the amounts paid or deposited in the current financial year in the below mentioned schemes, subject to a limit of Rs. 150,000/-.

  • Contributions to Annuity Plan of LIC
  • Contributions to Approved Superannuation Fund
  • Contributions to Deferred Annuity
  • Expenditure on Children Education (Tuition Fees of Max 2 children)
  • Fixed Deposit above 5 years in scheduled banks
  • Housing Loan Repayment (Principal Amount of Loan)
  • Investment in Infrastructure Bonds
  • Payment to Life Insurance Premium
  • Investment in Mutual Fund
  • Fixed Deposit in Post office (Cumulative time deposit for 5 years)
  • Contributions to Public Provident Fund/ Recognised Provident Fund
  • Contributions to Statutory Provident Fund
  • Contributions to Sukanya Samruddhi Account Scheme
  • Contributions to ULIP
  • Investment in NSC & Interest accrued on NSC

What is PPF or Public Provident Fund?

Public Provident Fund is also a kind of retirement benefit scheme. This is a voluntary scheme where any individual can open the account and contribute some amount towards that PPF.

PPF can be opened by any individual in Post Office or its branches which handle the PPF accounts and in any nationalized banks or its branches which handle the PPF accounts.

The minimum amount to be deposited in to a PPF account is Rs. 500/- per year and the maximum is Rs.1,50,000/- per year.

PPF is for a period of 15 years which can be extended to another 5 years on maturity.

What is Provident Fund (PF)?

PF means Provident Fund. A part of the salary is deducted every month and deposited in the Provident Fund Account which acts as a personal savings as well as pension fund.

The employer shall also contribute the same extent of amount to this fund.  The employee contribution is taken completely to the saving mode whereas the employer contribution is divided across saving mode and pension fund.

When the employee leaves the job, this amount can be withdrawn. If the employee gets retired then the PF contribution shall be withdrawn and the pension contribution shall be paid as monthly pension to the employee.

PF amount which is accumulated in the PF Fund is also transferable. Employee can transfer his/her PF account, if the employment changes from one company to company.

Who are covered under PF?

Who are covered under PF?

As per PF Act, 1952, an employee of an organization employing a minimum of 20 employees, whose gross salary (Basic + DA) does not exceed Rs 15000 per month, is required to become a member. This is mandatory. But if the company desires, those who’s starting salary exceed Rs. 15000/- can also become PF members. Once covered, an employee will continue to be covered whatever be the salary. Similarly, a covered establishment will not go out of coverage of EPF if the number of employees comes down below 20.

What is Company PF No.?

Company PF number is the account number which is allotted for a particular organization. For example, consider this PF no. KA/12354. Here, KA is the regional code given and 12354 is the account number allotted for the organization.

What is Voluntary PF?

If the employee is interested in voluntary contribution over the basic contribution to the PF fund, they can contribute for Voluntary PF where only employee’s share is put in the PF Fund.

What is Zero Pension?

Out of 12% contribution to the PF Fund, 8.33% is for Pension fund (up to a limit) and the rest is for regular Provident fund. But, when the employee opts for zero pension, the total contribution will go to the PF Fund only.

Normally, when the employee had crossed the age of 58 yrs and still working, the contribution is considered only for PF Fund.

Also, if the employees (Basic + DA) is above Rs. 15,000 per month, the contribution is considered only for PF Fund.

What are PF, PS, EDLI, Administrative Charges and Other Charges?

An employer is supposed to collect 12% of the gross salary as employee’s contribution and a similar amount is to be contributed by the employer. The employer’s contribution of 12% is to be divided into 8.33% and 3.67% and the same are deposited in A/c No. 01 and A/c No. 10 respectively. The employee’s share of 12% is also deposited in A/c No. 01. The A/c No. 01 represents Provident Fund and A/c No. 10 represents Pension Fund.

Besides these, employer has to deposit 0.65% of the total salary bill (of the eligible employees) to A/c No. 02 as Administrative charges, 0.5% of the salary to A/c No. 21 towards Employees Deposit Linked Insurance [EDLI] and 0.01% towards administrative charges of EDLI to A/c No. 22. Deposit to A/C No’s 02, 21 and 22 are to be made by employer alone and the sum cannot be recovered from the salary of employees.

In case of,

  • establishment with less than 20 employees
  • sick industrial company and which has been declared as such by the Board for Industrial and Financial Reconstruction
  • establishment which has at the end of any financial year, accumulated losses equal to or exceeding its entire net worth
  • establishment in following industries:- (a) Jute (b) Beedi (c) Brick ( d) Coir and (e) Guar gum Factories,

the contributing rate shall be 10% instead of 12%

Monthly payable amount under EPF Administrative charges is rounded to the nearest rupee and a minimum of Rs 500/- is payable. If the establishment has no contributory member in the month, the minimum administrative charge will be Rs 75/-

Monthly payable amount under EDLI Administrative charges is rounded to the nearest rupee and a minimum Rs 200/-is payable. If the establishment has no contributory member in the month, the minimum administrative charge will be Rs 25/-

Inspection Charges:
In case, the Establishment is exempted under PF Scheme, Inspection charges @0.18%, minimum Rs 5/- is payable in place of Admin charges.

In case, the Establishment is exempted under EDLI Scheme, Inspection charges @ 0.005%, minimum Re 1/- is payable in place of Admin charges.

Interest Liability: For belated remittances of contributions, administrative / inspection charges interest at the rate of 12% on such remittances for the period of delay is to be remitted.

Damages: For all the belated remittances of contribution and administration/inspection charges damages are also payable as penalty ranging from 17% to 37% p.a. depending upon delay.

EDLI Exemption: The establishment can get exemption from the EDLI Scheme, if the employees therein are entitled for a benefit in the nature of insurance whether linked to their PF deposit or not and without paying any contributions.

After how many days of DOL employee can withdraw the amount?

After 60 days, this is because Company will settle all the employee accounts within this period.

What are the benefits of PF?

Broadly we may classify benefits into three;

1.Provident Fund Benefits

  • Employer also contributes to members PF @ 3.67%
  • EPFO guarantees the Employer contribution and Government gives a decent interest to PF accumulations
  • Member can withdraw from these accumulations to cater financial exigencies in life. Not required to refund unless misused
  • On resignation, the member can settle the account. i.e., the member gets his PF contribution, Employer Contribution and Interest

2.Pension Benefits

  • Pension to family
  • No amount is taken from member to give Pension to the member. Employer and Government contributes to Pension fund @8.33%
  • EPFO guarantees pension to members, even if the Employer has not contributed to Pension Fund.

3.Death Benefits

  • Provident Fund Amount to Family (or to Nominee)
  • Pension to Family (or to Parent / Nominee)
  • Capital Return of Pension
  • Insurance (EDLI) amount to Family (or to Nominee). No amount is taken from member for this facility. Employer contributes for this.
  • Nominee is basically determined as per the information submitted by the member at this office through FORM-2

What is Employee State Insurance (ESI)?

Employees’ state Insurance Scheme of India is a multidimensional social system tailored to provide socio-economic protection to worker population and their dependents covered under the scheme. Besides full medical care for self and dependents, which is admissible from day one of insurable employment, insured persons are also entitled to a variety of case benefits in times of physical distress due to sickness, temporary or permanent disablement etc. resulting in loss of earning capacity, the confinement in respect of insured women, dependents of insured persons who die in industrial accidents or because of employment injury or occupational hazard are entitled to a monthly pension called the dependents benefit.

At an average the ESI Corporation makes 40 lakh individual payments each year amounting to about Rs.300 crores through its wide spread network of branch Offices in the implemented areas. For availing cash benefit in different contingencies insured persons or their dependents have to complete some minimal formalities and follow certain set procedures.

Employee State Insurance was introduced to provide certain medical benefits to employees in case of sickness, maternity and employment injury and to make provisions for related matters. As the name suggests, it is basically an ‘insurance’ scheme i.e. employee gets benefits if he is sick or disabled.

What is ESI Scheme?

This scheme is introduced to provide certain benefits for the employees in times of physical and economic distress consequent up on sickness, disablement etc., Along with the necessities like food, clothing, housing etc., people need security from any unforeseen incidents such as sickness, disablement etc.,.

The Employees’ State Insurance Scheme is an integrated measure of Social Insurance embodied in the Employees’ State Insurance Act and is designed to accomplish the task of protecting ’employees’ as defined in the Employees’ State Insurance Act against the hazards of sickness, maternity, disablement and death due to employment injury and to provide medical care to insured persons and their families.

The Scheme covers employees of non-seasonal power-using factories employing 10 or more persons. There is, however, a built-in provision for its extension to other establishments or classes of establishments, industrial, commercial, agricultural or otherwise. The Scheme has been progressively extended to cover employees in non-power using factories employing 20 or more persons and to commercial establishment.

How does the scheme help the employees?

The scheme provides full medical care to the employee registered under the scheme during the period of his/her incapacity for restoration of his/her health and working capacity. It provides financial assistance to compensate the loss of his/ her wages during the period of his abstention from work due to sickness, maternity and employment injury. The scheme provides medical care to his/her family members also.

Who administers the ESI Scheme?

The ESI Scheme is administered by a corporate body called the ‘Employees’ State Insurance Corporation’ (ESIC), which has members representing Employers, Employees, the Central Government, State Government, Medical Profession and the Parliament. The Director General is the Chief Executive Officer of the Corporation and is also an ex-officio member of the Corporation.

What are the other bodies of the ESI Corporation?

At the National level, the Standing Committee (a representative body of the Corporation) for administering the affairs of the Corporation, and the Medical Benefit Council, a specialized body that advises the Corporation on administration of Medical Benefit, are functioning.

At the Regional Level, the Regional Boards and Local Committees have been constituted to review the functioning of the scheme and make suggestions for its improvement.

How the Scheme is funded?

The ESI scheme is a self financing scheme. The ESI funds are primarily built out of contribution from employers and employees payable monthly at a fixed percentage of wages paid. The State Governments also contributes 1/8th share of the cost of Medical Benefit.

What is the Implementation Area for this scheme?

ESI Scheme is implemented in phases in different part of the country through Gazette notification after making the infrastructure available towards dispensation of medical as well as other benefits provided under the provisions of the Act to the prospective beneficiary.

What are the establishments that attract coverage under ESI?

According to the notification issued by the appropriate Government (Central/State) concerned under Section 1(5) of the Act, the following establishments employing 10 or more persons attracts ESI coverage.

  • Shops
  • Hotels or restaurants not having any manufacturing activity, but only engaged in ‘sales’
  • Cinemas including preview theaters
  • Road Motor Transport Establishments
  • News paper establishments.(that is not covered as factory under Sec.2(12))
  • Private Educational Institutions (those run by individuals, trustees, societies or other organizations and Medical Institutions (including Corporate, Joint Sector, trust, charitable, and private ownership hospitals, nursing homes, diagnostic centers, pathological labs)

In some states coverage is for 20 or more employees for wages. A few State Governments have not extended scheme to Medical & Educational Institutions.

What is ESIC?

Employees State Insurance Corporation (ESIC) has been formed to supervise the scheme under section 3 of the ESI Act. The corporation supervises and controls the ESI scheme.

How does the Employees' State Insurance Scheme assist you?

An interruption of money even for a small period is a hardship in a modern economy. For example, an employee met with an accident and had hospitalized for 6 months. Employee won’t get salary at the time of hospitalization indeed dependents has to pay the medical bills too.

This sort of inconvenience and interruption are inevitable in every body’s life. By coming forward to provide health protection and income maintenance in a series of often experienced contingencies like sickness, maternity, disablement and death due to employment injury, the Employees’ State Insurance Scheme tends to ameliorate your economic anxiety and to be a friend in need and distress.

What is the applicability of ESI for any organization?

ESI Act applies to all non seasonal factories (including Government factories) which employ 10 or more employees and carry on a manufacturing process with the aid of power. It also is extended to establishments, shops employing more than 20 employees.

The appropriate Government can also make it applicable to any other industrial, commercial, agricultural or other establishments, by issuing notification and giving 6 month notice.

ESI Act can be made applicable to ‘shops’ also. However, since Government has to provide for hospitals and medical facilities, the Act can be made applicable to different parts of state at different dates.

Thus, if a factory is at a place where ESIC is unable to provide medical facilities, ESI Act may not be made applicable to the area.

Government can exempt a factory or establishment or persons or class of persons from provisions of ESI Act, if the employees are getting better medical facilities [e.g. if Government is convinced that the factory itself is providing very good medical facilities e.g. like TISCO].

What is the Coverage of ESI?

All the employees like casual, temporary or contract whose drawing wages are less than Rs. 21,000/- pm are covered under the act.

What are the Contribution Rates for ESIC?

The percentage of contributions made to the ESIC authorities are as under:

  • By the eligible employees – 1.75% of Gross wages
  • By the employer – 4.75% of Gross wages, including administrative charges

Thus company will bear an additional burden of 4.75% to comply with the ESIC monthly on the gross wages. Employees covered under the scheme are persons whose monthly gross salary is of less than Rs. 21,000.

The above amount is to be deposited in Challan form prescribed under the act.

A half yearly return on Form 6 is to be submitted with local ESI office. Declaration forms are to be submitted with local office of ESI within 10 days of new joining.

Before doing all this for ESI applicability, please check with the local ESI office whether the ESI scheme is applicable in your area or not because this is a scheme which applicable on areas notified by ESI authorities.

Basic + Special Allowance & OT are considered in computation of wages for ESI contribution whereas Bonus is not considered in computation of wages for ESI contribution.

In case of Daily Wage Employee, if an employee daily wage is <= 100 Rupees then for that employee only Employer will be contributing. Employee will not be contributing in such cases.

What are the benefits of ESI?

The endorsement of Employee’s State Insurance Act, 1948 visualized an integrated need based social insurance scheme that would protect the interest of workers in emergencies such as sickness, maternity, temporary or permanent physical disablement, and death due to employment injury resulting in loss of wages or earning capacity. The act also guarantees reasonable good medical care to workers and their immediate dependants.

The Act provides following six social security benefits:

  • Medical Benefit
  • Sickness Benefit(SB)
  • Extended Sickness Benefit(ESB)
  • Enhanced Sickness Benefit
  • Maternity Benefit(MB)
  • Disablement Benefit
  • Temporary Disablement Benefit(TDB)
  • Permanent Disablement Benefit(PDB)
  • Dependant’s Benefit(DB)
  • Funeral Expenses

What is registration of Factory/ Establishment?

Registration is the process, by which every factory/ establishment, to which the Act applies, is identified for the purpose of the ESI Scheme, and their individual records are set up for them.

Is it mandatory for the Employer to register under the scheme?

Yes, it is the statutory responsibility of the employer under Section 2 –A of the Act read with Regulation 10-B, to register their Factory/ Establishment under the ESI Act within 15 days from the date of its applicability to them.

What is the procedure for Registration of an employer?

The Factory or Establishment to which the Act applies is to be registered by logging into ESIC Portal i.e. www.esic.in .The employer is supposed to sign up, providing company name, principle employer’s name, State and region as well as e-mail address. The employer trying to register would get a password into his mail id. The employer can log in to www.esic.in and his mail ID can be used as user ID and the password received has to be accessed from the mail box to be used to register his unit by providing information in the Portal. Automatically a 17 digit code number is generated after successful registration.

What is a Code number?

It is a 17 digit unique identification number allotted to each of the factory/establishment registered under the provisions of the Act. Such a number is generated through ESIC portal on submission of the pertinent information by the employer or generated on receipt of Survey report from the Social Security Officer.

What is a Sub-code number?

This is also a unique identification number allotted to a sub-unit, branch office, sales office or Registered Office of a covered factory or establishment located in the same State or different State. The employer can register any Branch or Sales Office through ESIC Portal using his credentials.

What is the Employer’s Obligation in ESI?

The Employer’s obligations in terms of ESI is as below:

  1. Get your Factory/establishment registered within 15 days after the Act becomes applicable. Submit Form 01 to the Regional Office for this purpose.
  2. Obtain Employers code No. for use in all ESI Forms/documents and correspondence with the offices of the ESI Corporation.
  3. Fill up Declaration Forms in respect of all coverable employees and submit the same to the Regional Office/Local Office of the Corporation well before the Appointed day and obtain Insurance Number from the concerned Local Office/Regional Office.
  4. In respect of newly appointed employees, fill up the Declaration Form soon after appointment of such employees and submit the same to the local office concerned.
  5. Pending receipt of identity cards/identity certificates, you may issue Certificate of employment in Form 86 to the covered employees enabling them to avail cash/medical benefits.
  6. Pay ESI contributions (Employers share @ 4.75% of the wages and the employees share @1.75% of the wages) within 21 days of the month following, in which the wages fall due.
  7. Maintain an Accident Book as prescribed under the Factory Act/ESI Act.
  8. Submit an Accident Report to the Local Office/ESI dispensary concerned immediately in respect of accidents that could result in death or disablement and within 24 hours of its occurrence. Minor accidents which do not cause absence from work need not be reported.
  9. Grant leave to insured employees on the basis of sickness certificates issued by any authorized ESI doctor.
  10. Submit return of contribution within 42 days of the expiry of contribution period.
  11. Furnish any requisite information promptly as and when asked for by the Regional Office/Local Office/any other office of the Corporation/Scheme.
  12. Facilitate proper inspection of factory/establishment by any authorized officer of the Corporation and produce before him all relevant records on demand.
  13. Intimate the date of closure or shifting (temporary or permanent) of the factory/establishment to the Regional Office/Local Office within seven days of its closure or shifting.
  14. Promptly report any change in the business activity, ownership of the concern or its management.
  15. Ascertain the liability towards ESI dues, while taking over the ownership of any factory/establishment by purchase, gift, lease or license or in any other manner whatsoever as new owner is liable to discharge the past liabilities if any.
  16. Maintain proper sanitation for a hygienic and healthy environment within the workplace and in residential quarters if allotted to the insured persons.

What is the role of ESIC in delivery of benefits?

The ESIC provided following benefits to employees enrolled under ESI scheme;

  1. The quality and quantity of benefits is as per norms and standards laid down by the corporation for the purpose.
  2. The benefits are made available within the given time frame to insured persons and beneficiaries.
  3. No harassment is caused to the beneficiaries across the counter at the grass root level by way of word or deed.
  4. All requisite information, procedural guidance etc. is made available to the beneficiaries for claiming benefits.
  5. All types of Forms etc. are made available to the beneficiaries free of costs as may be required by them for filing claims etc.
  6. No beneficiary is exploited at any level in any way in the process of delivery of benefits.
  7. Office hours as notified for ESIC/ESIS establishments are strictly adhered to by the staff and displayed prominently so as to avoid any inconvenience being caused to the beneficiaries in smooth flow of benefits.
  8. Drugs, dressings, injections etc. as prescribed by the authorized doctors are made available timely.
  9. A complaint box is fixed within the office premises for posting written complaints.

Can a factory or establishment once covered go out of coverage if the number of persons employed therein goes down to the minimum limit prescribed?

Once a factory or an Establishment is covered under the Act, it continues to be covered notwithstanding the fact that the number of persons/ coverable employees employed therein at any time falls below the required limit or there is a change in the manufacturing activity.

Is there any provision for 'exemption of a factory or establishment' from ESI coverage?

Of course exemption is permissible from operation of provisions of the Act subject to the condition that the employees in a factory or establishment covered are other-wise in receipt of benefits substantially similar or superior to those provided under the ESI Act. The appropriate Government may grant exemption to such factory or establishment for a period of one year at a time prospectively in consultation with ESI Corporation. Application for renewal is to be made three months before the date of expiry of the period exemption.

If the wages of an employee exceeds Rs. 21,000 in a month, can he be treated as not covered and deduction of contribution from his wages is stopped?

If the wages of an employee (excluding remuneration for overtime work) exceeds the wage limit prescribed by the Central Government after start of contribution period, he continues to be an employee till the end of that contribution period and hence contribution is to be deducted and paid on the total wages earned by him.

What is the effect of increase in wages from a retrospective date?

In case the wages of an employee is increased from a retrospective date resulting in crossing the wage limit prescribed, its effect on coverage of that employee is only after expiry of the Contribution period during the currency of which such increase is announced or declared. The contribution on enhanced wages is also payable from the month in which such increase is announced. There is no need to pay the contribution on the arrears for the period prior to the month of declaration/ announcement/ agreement.

Why contribution should be paid on the total wages beyond the wage ceiling limit when an employee crosses the wage limit prescribed by the Central Government?

An employee who crosses the prescribed ceiling limit in any month at any time after commencement of the contribution period, he/she would continues to be an employee till the end of that contribution period.

Though there is a ceiling limit of wages for coverage of an employee, there is no ceiling limit in the definition of wages for payment of contribution. Hence, contribution is payable on the total wages without any ceiling limit.

Why over-time is to be excluded for wage ceiling limit for coverage of an employee?

Overtime is not a regular and continuous payment, but it is of an occasional nature. If overtime is also taken for wage limit for coverage of an employee, he may be going out of coverage for some time and again coming within the orbit of the scheme, when overtime is not there. This frequent interruption from the scheme deprives him of the benefits admissible under the scheme even after making payment of contribution for a part of contribution period. To ensure continued security and protection, overtime is excluded for determining the wage ceiling for coverage of an employee. However, it is included for payment of contribution to cover the risk during the period he was on overtime work, and to enable him to draw cash benefits at an enhanced rate also.

Is there any provision for exemption from payment of Employer's contribution?

With effect from 1-4-2008, the wage ceiling limit for coverage of employees with disability has been raised to rupees twenty five thousand a month. To encourage the employers for employing more employees with disability, the employer is exempted from payment of Employer’s share of contribution on the wages paid to the employees with disability for a maximum period of three years from the date of commencement of the contribution period in which such employee with disability is employed. The Central Government shall reimburse this Employer’s contribution to the ESI Corporation.

What is the time limit for payment of contribution?

Contribution shall be paid in respect of an employee in to a bank duly authorized by the Corporation within 21 days of the last day of the calendar month in which the contribution falls due for any wage period (Reg. 29 & 31).

What is the manner of working out & payment of contributions?

The employer needs to file monthly contributions online through ESIC portal on a monthly basis in respect of all its employees after duly registering them. Through this exercise, the employer has to file employee wise number of days for which wages paid & the amount of wages paid respectively to ascertain the amount of contributions payable.

The total amount of contribution (both the shares) in respect of all the employees for each month is to be deposited in any branch of a scheduled bank in cash or by cheque or demand draft on generation of such a challan through ESIC portal using credentials. Contributions can be paid online through internet banking too.

What are consequences of non / late payment of employees' contribution deducted but not paid?

Any sum deducted by the Principal employer from wages under the ESI Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted (Sec. 40(4). Non-payment or delayed payment of the Employee’s contribution deducted from the wages of the employee amounts to ‘ Breach of trust’ and is punishable under IPC 406.

Will the delayed payment attract any interest?

An employer who fails to pay the contribution within the limit prescribed under Regulation 31, shall be liable to pay simple interest at the rate of 12% per annum in respect of each day of default or delay in payment of contribution.

What are the penal provisions for non-payment or delayed payment of contribution?

  1. The employer is liable for prosecution under Section 85(a) and 85 A of the Act.
  2. The Corporation may levy and recover damages at the following rates, not exceeding the amount of contribution payable for default or delay in payment of the contribution.
Period of delay Rate of damages in % p.a.
Less than 2 months 5 %
2 to 4 months 10 %
4 to 6 months 15 %
6 months and above 25 %

Some facts of ESI.

  1. ESIC is the country’s first multi-dimensional social security system for workers in the organized sector.
  2. ESIC covers a total beneficiary population of more than 10 crore today. ESIC has the country’s largest medical infrastructural facility under one umbrella.
  3. ESIC is the most affordable social security system with the lowest contribution rate for multiple health insurance benefits.
  4. ESIC is the only health insurance scheme that offers full medical care to workers and their dependents without any ceiling on individual expenditure.
  5. ESIC offers a special package of full medical care to retired/disabled insured persons for self and spouse for a nominal contribution of Rs.120/- per annum.

What is Profession Tax (PT)?

Profession tax is a state specific tax. Every state will have a slab of rates. PT is collected on profession, trades, and callings or holds any appointment public or private or is employed in any manner in the state for the benefit of the state. Every employee has to pay profession tax based on his earning. Employer deducts the tax from the salary and remits to state government account every month in the specified form.

PT differs from state to state. Some states never come under the PT as it is governed by the state government. The payment and return terms also differs from state to state.

Employer’s liability to deduct and pay tax on behalf of employees:
Employer is liable to pay the tax of his/her employees. Profession tax amount shall be deducted by the employer from the salary or wage payable to employee before such salary or wage is paid to the employee. And such employer shall, irrespective of whether such deduction has been made or not when the salary or wage is paid to such persons, be liable to pay tax on behalf of all such persons.

Provided that, if the employer is an officer of government, the state government may, notwithstanding anything contained in this Act, prescribe by rules the manner in which such employer shall discharge the said liability.

Every employer registered under this act, shall furnish to the assessing authority with in sixty days of the expiry of the year, a return in the prescribed form showing therein the salaries and wages paid by him and the amount of tax deducted by him in respect thereof during the preceding year.

Penalty for non-payment of tax:
If an enrolled person or a registered employer fails without a reasonable cause, to make payment of any amount of tax within the required time or date as specified in the notice of demand the assessing authority may, after giving a reasonable opportunity of making representation, impose upon him a penalty not exceeding fifty percent of the amount of tax due.

When is Profession Tax levied?

Professional tax is a state level tax which is imposed on income earned by way of profession, trade, calling or employment. The tax is based on slabs depending upon income of individual who may be self employed or working as employee of an entity. At present the maximum tax that can be imposed is restricted to is Rs. 2500/-..

Who is the designated Authority?

A Designated Authority is the authority which levies and collects the tax from a person liable to pay professional tax.

Who is the Designated Authority for an employer?

For all employers including State and Central Government Offices, Public Sector Undertakings of Governments, Panchayat and Grant-in-Aid Institutions, the State Government is the Designated Authority.

What is enrollment certificate and registration certificate?

Every employer in specific states is required to deduct taxes from salary when paid to one or more employees when payment made exceeds certain amount(limit varies from state to stae) and deposit with state government. That entity is required to obtain registration certificate.

When person is employed in profession by two or more employers and is getting salary/wages exceeding state specified amount but employer is not deducting professional tax then the individual needs to get enrollment certificate from authority.

Is Professional tax applied in all states of India?

Professional tax is applied only in few States of India like Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamilnadu, Gujarat, Assam, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim.

Is there any exemption for PT payment?

Every state has its own governing provisions and exemption criteria. For example Karnataka PT act, has given exemption to certain persons from payment of PT.

  • All charitable and philanthropic hospitals or nursing homes situated in places below the Taluk level in all districts of the State except Bangalore and Bangalore Rural District.
  • Directors of Companies registered in Karnataka and nominated by the financing agencies owned or controlled by the State Government or by other statutory bodies.
  • Foreign technicians employed in the State provided their appointments are approved by the Government of India for the purpose of exemption from payment of income tax for the said period ( exemption is for a period of 2 years from the date of their joining duty).
  • Combatant and civilian non combatant members of the Armed Forces who are governed by the Army Act, the Navy Act and the Air Force Act. Salaried or wage earning blind persons. Salaried or wage earning deaf and dumb persons.
  • Holders of permits of single taxi or single three wheeler goods vehicle.
  • Institutes teaching Kannada or English Shorthand or Typewriting.
  • A Physically handicapped person not less than 40% of permanent disability (subject to production of certificate from the HOD of Government Civil Hospital).
  • An ex-serviceman not falling under Sl No.1 of the Schedule.
  • A person having single child and who has undergone sterilization operation, subject to production of a certificate from the District Surgeon, Government Civil Hospital, for having undergone such operation.
  • Central Para Military Force (CPMF) Personnel.
  • Persons running educational institutions in respect of their branches teaching classes up to twelfth standard or pre-University Education.
  • No tax is payable by persons who have attained age of fifty eight years.
  • Also no tax is payable for holding any Profession for less than 120 days in the year.

What are Reimbursements?

Reimbursements are the amounts paid to the employees, after any expenditure is incurred by the employee under some heads like telephone bill, medical bill and LTA. The spent amount is paid only when the employee claims it. Those amounts claimed are called as Reimbursements.The reimbursements provided for employees may vary from one company to another.

Common types of reimbursements are;

  1. Medical Reimbursements
  2. Leave Travel Allowance
  3. Other Reimbursements include Telephone charges, Transport charges etc.

What is the difference between Reimbursements and Allowance?

Allowance is an amount which is given to the employees, irrespective of the issue whether they spend it or not.

Reimbursement is the amount which the employee will get only after spending the money for hospitalization, traveling etc.

What is the difference between exemption and allotment in reimbursement?

Allotment is company restricted and exemption is Government restricted. A company can allot any amount to the employee as reimbursement to be given but tax exemption can be claimed only upto the government restricted amount.

What is Medical Reimbursement?

The medical expenses reimbursed by employer to the employee is called as Medical reimbursement. Such payment should be a reimbursement, against the production of bills or vouchers, and not an allowance, which you may or may not spend. The medical expenses include the hospitalization expenses of employee and his/her family.

Amount received as Medical Reimbursement is tax exempt up to Rs.15,000/- is not treated as taxable perquisite. This exemption is enjoyed by the employee only if the expenditure is actually incurred on his medical treatment or for treatment of any member of the family after producing the bills.

For claiming the medical reimbursements, whether the bill is necessary or not?

Any claim done should be supported with the bills, to claim tax exemption. Otherwise the entire amount will be taxable, although it is with in the limit of the allotment. As per the Government rule, along with the bills, prescriptions must be submitted.

What is Leave Travel Allowance (LTA)?

Reimbursement of travel expenses incurred by the employee on the tour expenses during his/her leave period is called as Leave Travel Allowance (LTA). This is not applicable for expenditure on hotel accommodation during the travel.

Leave travel expenses incurred is exempted to the extent of the actual amount spent. Further, this exemption is available only up to the cost of air travel in first class to your destination, and is available twice in a block of four years.

LTA Claim Rules;

  • In a block period of 4 years – LTA can be claimed twice.
  • One block period consists of 4 calendar years and it is defined by Government. The current block period is 2014- 2017.
  • Only one LTA can be claimed in a Calendar Year.
  • There is No limit on the amount (according to Govt.). The actual amount spent on the travel can be claimed.
  • If No single LTA is claimed in one block period, one out of those two can be carried forward.
  • The carry forwarded claim must be made in the first calendar year of the next block period.

Whether the employee can go to two or three places and claim for the LTA?

No. The travel must be a straight and direct travel from one place to another place only. The shortest route for travel is accepted. There is a condition that, one claim must be for going to the home town.

Whether the employee can hire a car/taxi/auto and claim for the LTA?

No.  Travel must be through Flight/Train/Bus. Maximum is First class flight ticket charges.

How many times can an employee claim LTA exemption?

The employee can claim exemption on two journey(s) in a block of 4 years. For this purpose, the first block of 4 years was calendar year 1986-89. For a block of 4 years, the journey performed in the first year following that block year is also eligible for exemption. Also, such journey will not be taken into account for determining the tax exemption for the succeeding block.

To qualify for LTA exemption is it necessary to perform actual journey?

Yes, certainty. In case the LTA is encashed without actually performing the journey the entire amount received by the employee would be taxed in his/her hand.

What is the definition of family for reimbursement purpose?

For reimbursement purpose “family” means:-

  • The spouse and children of the individual; and
  • The parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.

Has any change been made in rules for exemption of LTA to deny this benefit to large families?

Yes. Exemption of LTA shall not be available to more than two surviving children of an individual after 1st October 1998. However, this shall not apply in respect of children born before 1.10.1998 and also in case of multiple births after one child. If an employee has before 1.10.1998 even five children or more, exemption would still be available to all children. However, if an employee begets a third child after 1.10.1998, the LTA for the third child will not be exempt.

What is Bonus?

Bonus is the amount given or paid in addition to what is usually expected or due. The Payment of Bonus Bill was introduced in the Parliament on 29th May, 1965.

Objective: The object of this act is to provide for the payment of bonus (linked with profit or productivity) to the persons employed in certain establishments. Any establishment employing more than 20 employees on any day during an accounting year should pay the bonus to its employees.

What is the applicability of Bonus?

The payment of Bonus act extends to the whole of India and is applicable for every factory/establishment/company etc., which has employed 20 or more workers on any day during an accounting year.

For the purpose of calculating the number of employees for applicability of the act, part time employees can also be included.

What is an establishment for the purpose of Bonus?

Establishments include departments, undertakings and branches – where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act.

Who is eligible to receive Bonus?

Every employee drawing less than Rs. 21,000/- per month and who has worked for not less than 30 days in an accounting year shall be eligible for the Bonus. Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

What is the minimum and maximum Bonus payable?

Minimum Bonus: Every employer is bound to pay a minimum bonus which shall be 8.33% of  Rs. 7000 or Rs. 100, whichever is higher, whether or not the employer has any allocable surplus in the accounting year.

Maximum bonus: Where in respect of any accounting year, if the allocable surplus exceeds the amount of minimum bonus payable to the employees, employer shall, in lieu of such minimum bonus is bound to pay to every employee an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage.

Who are not applicable to receive Bonus?

Bonus Act will not apply to certain class of employees like:

  • Employees working under an insurer carrying on general insurance business
  • LIC of India
  • Employees working in an establishment which is governed under central, state or any local authority
  • Red Cross society
  • Universities & other educational institutions
  • Hospitals
  • Social welfare institutions etc which are established not for the purposes of profit
  • RBI, Industrial Finance corporation of India
  • The deposit insurance corporation
  • Unit Trust of India
  • Industrial Development Bank of India etc.

What is proportionate reduction of Bonus?

In certain cases where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, if such bonus is higher than 8.33 per cent of his salary or wage for the days he has worked in that accounting year, it shall be proportionately reduced.

Who can be disqualified from Bonus?

Fraudulent, violent behavior at the work place, theft, misappropriation or sabotage of any property of establishment done by employee can lead for disqualification of bonus.

Who has the power to exempt from Bonus payment?

With regard to the Financial position and other relevant circumstances of an establishment, if the appropriate Government opines that it will not be in public interest to apply all or any of the provisions of Bonus Act thereto, it may, by notification in the official Gazette, exempt for such period as may be specified therein and subject to such conditions as it may think fit to impose, such establishment or class of establishments from all or any of the provisions of this Act.

How do the calculation of bonus with respect to certain employees change?

Where the salary or wage of an employee exceeds seven thousand rupees per month, the bonus payable to such employee, shall be calculated as if his salary or wage were seven thousand rupees per month.

What is deduction of certain amounts from bonus payable under the Act?

Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only and the employee shall be entitled to receive the balance, if any.

What is the time-limit for payment of bonus?

Amounts payable to an employee by way of bonus shall be paid through online transfer to the respective bank account, by his employer within a period of eight months from the close of an accounting year.

What are the registers to be maintained under the Act?

The following three registers have to be maintained by the employer at any point of time

  1. A register showing the computation of the allocable surplus;
  2. A register showing the set-on and set-off of the allocable surplus;
  3. A register showing the details of bonus amount payable to all employees, the amount of deductions if any, and the amount actually paid.

An annual return has to be submitted to the Inspector appointed under the act.