It is a general guideline from Government of India that if a company crosses the employee strength of 20 numbers, it is time the employers should bring some statutory deductions in picture, like – Employee Provident Fund (EPF), Professional Tax (PT), Employees’ State Insurance (ESI). However Income Tax (IT) deductions (also known as Tax Deducted at Source (TDS) is applicable even with a single employee.
Although these deductions are cost to the company, but non-compliance to the same makes organisations liable to monetary punishments. Specially, when an organisation operates from multiple locations, a statutory compliance to these deductions becomes mandatory.
1. Employees’ Provident Fund (EPF)
EPF came into existence in 11th November 1952. EPF has traditionally been the only device for most Indians, particularly for the salaried class, so that they can save their retirement corpus. The government has now offered to pay interest on faulty accounts, almost 60 % of the total number. When employees change their jobs, they generally either withdraw their EPF accounts or just ignore these, if the profit is not much, and continue the same account in their next organisation. EPF is to be contributed by both Employee as well as Employer.
EPF contributions may vary from company to company. These are some of the logics applied:
1. Flat 12% of Basic salary
2. Some companies also calculate EPF based on salary range – For employees having salary Rs. 15k per month it is flat Rs.1800.
3. There is also an option of Voluntary Provident Fund (VPF), where employees may choose an amount to contribute for his/her EPF.
2. Professional Tax (PT)
Professional Tax is the tax duty on professions & trades in India. It is the state-level tax & has to pay imperatively by every member employed in private organisations.
Business owners, merchants, working individuals, & people carrying out different occupations comes under the range of this tax type. PT is mostly under the scope of the commercial tax department of the corresponding states. It is the source of revenue for state governments. There are decided slabs for the deduction of PT based on the salary of the employees. However, the maximum PT to be paid is Rs.2500 per year. PT paid by an employee is qualified for Income Tax deduction.
3. Employees’ State Insurance (ESI)
ESI is contributed from both the sides Employer as well as Employee. It is calculated on the basis of Total salary per month, and the maximum ceiling is Rs.15000 per Month.
The calculations for ESI can be seen below:
Employee Side: 1.75 percent of gross salary per month
So if gross salary of an employee is 8000 per month then
ESI contribution – 8000*1.75 % = 140 Rupees
Employer side: 4.75% of gross salary per month
ESI contribution – 8000* 4.75% = 380/-
Whereas PF is contributed at 12% of basic salary alone from both sides, employee also the employer.
4. Income Tax (IT) deduction or TDS
Under the Section 192, the employer is needed to deduct TDS while making the payment month-on-month salary for any financial year to the employees. The tax form or forms applied to file Income Tax with the Internal Revenue Service (IRS). Tax returns must list every year for a person or business that received income through the year, whether by regular income like wages, dividends, interest, capital gains, or other profits. Tax deductions on income are to be strictly followed as per the slabs defined by Government of India.
Before an employer files IT in IRS, they need to roll out IT declaration forms, to their employees, at the start of the Financial Year to calculate month on month tax deductions from the salary. Most importantly, when we are about to reach the end of an Financial year, employer must ask employees to submit valid proofs for the declarations they made.
FastCollab’s Online Payroll comes with a most advanced Employee Self Service (ESS) Login, where employees can fill their IT declarations online along with provision to upload proofs and system takes care of Income Tax deductions. Employers can set-up the logics to calculate EPF contributions as well, within the system, based on employee’s salary.
Every time an organisation runs Payroll from FastCollab, system is capable to generate reports of EPF, ESI, PT and IT declarations, based on the formats preferred by Govt of India. Most importantly, if you are a CA firm and managing Payroll for multiple clients, it is time to try out FastCollab’s unique Payroll system where you can run Payroll for multiple clients within a single login, along with ESS to employees at your client’s place.