This is an informative article that explains in brief the tax responsibilities of an employer towards his employee in order to generate timely and accurate payroll.

Payroll taxes

Payroll related tax involves a good understanding of a typical compensation structure in an organization.

An employer has 2 parties that he has to consider when computing and remitting payroll taxes.

  1. Employee: The usual components of an employee’s salary are

a. Basic Salary

b. Reimbursement

c. Benefits

d. Retirement benefits

(For more information on the details of each aspect of the compensation structure, please refer to my article titled “Devising a simple compensation structure. “)

The components mentioned above are instrumental in computing the taxes owed by the employee to the government. The company will withhold these taxes on the generation of each payroll (depending on the payroll cycle) so that the tax burden at the end of the year is reduced.

  1. Government: This is the compulsory amount that is to be contributed by the employer and remitted to the Government as a result of employing certain number of people.

a. Provident fund

b. ESI (Employee state Insurance)

c. Labour Welfare Fund

Statutory remittances:

The employer should be aware of and take necessary action for payment of the above components on or before the mentioned dates

Remittance item Full form Deadlines
TDS Tax deducted at source On or before 7th of the following month
PT Professional tax Deadlines vary according to each state
PF Provident Fund 15th of the following month
ESI Employees State Insurance 21ST of the following month
  •  In addition to the above filing requirements, the employer is also obligated to submit a Quarterly filing of the TDS. The deadline for this is the 15th of the following month immediately after the end of the quarter.
  • Annual returns are to be filed by the 15th of May every year.
  • Form 16s have to be generated for each employee of the company for them to file their returns.

The Income Tax Journey

From the point of view of the employer, it is important to understand the Payroll tax process thoroughly so that the organization can be fully compliant and avoid any mishaps. The following points describe the Income tax journey from the beginning to end.

  • Tax is levied on income earned by the employee of the company.
  • Employee needs to make certain Income Tax declarations at the beginning of the year. These declarations will help him to reduce his tax burden. The Finance/ H R department computes the employee’s tax liability based on these figures and withholds tax from the monthly income of the employee.
  • In the last quarter, the employee is required to furnish the documents supporting the declarations. E.g. LIC policy or other tax deductible investments
  • Once the documents are verified, the tax is recomputed and the taxes levied are adjusted against the due amount.
  • Form 16 needs to be generated for every employee, which states the income earned and the taxes that are due to be paid to the government.
  • The Form 16 should be issued on or before 31st

The above points explain clearly the Employer tax responsibilities involved and the importance of filing these according to the regulations.

It is critical that every employer fully understands the concept of devising a salary structure and also the various regulatory requirements that allows the company to be a fully compliant enterprises .

(The author, Stella Lauren has contributed this post, who writes on organization growth and sustained development in the competitive business environment. Automatic Data Processing – ADP is a pioneer and a leading company in India, reckoned by its various customers as a reliable partner who offers unique innovative and simple to use HCM Solutions.)

Read Other Articles from Stella Lauren

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October 2020