CA Sneha Halder
Payroll: Being a people centric sensitive area, payroll needs to be handled very smoothly.
Salary Structure? Salary structure of employees need to be defined with an aim of providing maximum tax benefits to the employees. Indian Income Tax Act provides for very less tax benefits making the major portion of the salary as taxable. This makes it all the more important for the employer to explore all possibilities for minimum tax and then decide the components which suit the company and the employees.
Smooth, error free and timely salaries? It is of utmost importance that every employee gets his salary on time, accurate amount and with minimum hassles. For salaried class, as the only mode of income is salary, there cannot be any wrong deduction from the salary. All the calculations mandatorily should be up to mark. It would be bad to say that the adjustments will be made in next month.
Policies? The HR and payroll policies for working hours, working days, leaves, compensatory offs, bonus, incentives, reimbursements, notice period, maternity and paternity leaves etc should be clearly articulated. This would support in making the payroll function smooth. There would be minimum disagreements and matters to resolve if there is a company policy for all common issues.
Employee queries? Employee queries should be replied to at the earliest. A system should be in place for receiving, resolving and clarifying employee queries within a decided minimum turnaround time.
Tax deduction at source (TDS)? One of the very important task for the employer is to calculate the tax deduction from the employee’s salary. For this, employer needs to collect the investment details and claims from each employee and then do the calculations.
PAN needs to be mandatorily obtained from each employee in whose case tax is due to be deducted. If PAN is not provided by any employee then the employer has to deduct tax at 20% even on the income which is falling in 10% bracket.
- TDS deducted from employee’s salary needs to be deposited to the Government account within prescribed due dates (monthly). Interest implication, penalty and imprisonment are the consequences for non deduction,, short deduction or non payment within these due dates.
- Quarterly TDS returns need to be submitted which has the compilation of all TDS deductions of the quarter. Implication of non submission is a fee of Rs 200 per day of delay from the due date of submission to the date when return is submitted. But the fee will not exceed the total tax deductible in that quarter.
- If a quarterly return is incorrect or not submitted, a penalty of Rs 10,000 to Rs 1,00,000 may also be levied.
- TDS certificate (Form 16) in the prescribed form needs to be issued to every employee at the year end. If not issued within due date, a penalty of Rs 100 per day till the certificate is issued can be levied.
- The income of the previous employer should be considered for TDS. Hence current employer must obtain the Form 16 provided by the previous employer to the employee.
Evidence/Supportings? Budget 2015 has explicitly provided that the Employer will obtain evidence of the prescribed claims/ deductions/ exemptions from the employees and verify these to allow these for TDS. The genuineness of the claim and whether it is as per rules need to be verified by the employer.
Where no proof, statements possible? Where no proofs can be taken from employees, the employer should ensure that appropriate signed declarations are taken from them.
Benefits? If feasible for the company, employer can contribute to superannuation fund, pension schemes like National Pension Scheme, provident fund, keep exploring other retirement benefit avenues for employees. Also, employer can give various perquisites to employees depending upon the hierarchy and the need. Employer can consider taking health insurance/ accident insurance plans for employees. All the benefits provided to employees need to be analysed from the perspective of taxability also.
Bonus and Gratuity? Employer can have bonus/ incentive policies to encourage the employees to do better job. If an employee completes five years of service in the organisation then the employer has to mandatorily pay gratuity specified under the Gratuity Act. The calculations for the amount are provided in the Act. Bonus and gratuity are both fully taxable in the hands of the employee and hence to be included on the Form 16.
Provident Fund? A company having 20 or more employees needs to mandatorily get registered for provident fund. The employer has to contribute 12% of employee’s basic salary to this fund and employee contributes 12%. Both of them can voluntarily contribute more. The employer’s contribution is used to provide pension to the employee after retirement. Company must check applicability of this.
PT? Professional tax is a tax levied by the state on the income earned by way of profession, trade or employment. The tax is levied based on slab rates depending upon the income of the individual. Employers have to deduct the professional tax from the salary of the employee and deposit the same with the state government.
ESI? Employee state insurance scheme of India is a social security scheme designed to accomplish the task of socially protecting the employees of the organised sector against the event of sickness, maternity, disablement, death and to provide medical care to the insured employees and their families. Coverage under ESI is mandatory to specified establishments only (shops, hotels, news paper establishments etc).
MLWF? Maharashtra Labour Welfare Fund is applicable only to employees drawing wages less than Rs 3,500.
Knowledge? As a good practice, employer can keep its employees updated on new deductions, investment avenues, announcements related to income tax returns, other amendments laid out in the budgets etc.