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As we celebrate International Labour Day, it’s crucial for businesses to understand the tax provisions relating to labour. This conversation between Arjuna and Krishna sheds light on the importance of knowing these provisions and their implications.

Arjuna (Fictional Character): Krishna, on 1st May 2024 we will be celebrating “International Labour Day”. How important do you think it is for business to know about the labour related provisions?

Krishna (Fictional Character): Arjuna, Labour Day is a reminder of the contributions of workers to society. They are one of the strongest pillars of our nation and also the economy. The businesses have to interact with this labour force on a day-to-day basis and thus should know all the tax and other related provisions relating to labours.

Arjuna (Fictional Character): Krishna, what labour related provisions under Income Tax, are beneficial for the labour and also the businesses?

Krishna (Fictional Character): Arjuna, Provisions beneficial for labours is Section 10 of the Income tax Act, which deals with exemptions in income tax. For example, gratuity paid to employees exempt u/s. 10(10), leave encashment exempt u/s. 10(10AA), Provident Fund exempt u/s. 10(11) and other benefits are exempt up to certain limits. These exemptions aim to provide tax relief to employees and labours.

Provisions beneficial for Businessmen is Section 80JJAA which provides deductions to employers who create new employment. Employers can claim a deduction of 30% of additional wages paid to new regular workmen employed in manufacturing units for three years, encouraging job creation and growth in the labour market. Businesses are therefore benefitted by hiring new labour force and thus can scale its business along with which the labours will get new job opportunity.

Arjuna (Fictional Character): Krishna, Could you please explain the taxability of Labour Supply in GST?

Krishna (Fictional Character): Arjuna, There are two types of labour contract, wherein one only labour is supplied which is known as pure labour supply contract and when material is supplied along with labour then it is known as works contract. Pure Labour Supply, in construction of single residential unit or construction/repair/renovation of civil structure under the Pradhan Mantri Awas Yojana is exempt under GST. Other than this service the supply of labour along with supply of manpower which includes drivers and other clerical staff is taxable at the rate of 18%.

Although, if the person is under employment of the other person then no GST is levied.

Arjuna (Fictional Character): Krishna, what are other important labour related provisions?

Krishna (Fictional Character): Arjuna, if labour services are received from contractors then TDS at the rate 1% for individual and HUFs and 2% for others is required to be deducted.

Further if wages/salary to any of the employee exceeds Rs. 7,500 in month then the employer is required to obtain PTRC registration and deduction Profession Tax from staff.

In addition to that Employee Provident Fund(EPF) registration is mandatory for all business employing more than 20 persons.

Arjuna (Fictional Character): Krishna, What should we learn from this?

Krishna (Fictional Character): Arjuna, The labour force are the working force of our nation. The hard work put in by them contributes to the growth of our country. As a business owner, we shall keep all the labour related provisions in our mind and shall diligently adhere to the provisions for the benefit of this hardworking labours and to also avoid legal consequences.

Conclusion: The dialogue between Arjuna and Krishna underscores the importance of understanding and adhering to labour-related tax provisions for businesses. By doing so, businesses can ensure compliance, support the welfare of their workers, and avoid legal repercussions. Recognizing the invaluable contribution of the labour force, businesses must prioritize their adherence to these provisions to foster a fair and equitable working environment.

Author Bio

1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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May 2024