manojsis Started The Discussion:
Dear all

i want to know abut esi deduction, we r deucting esi of gross sal(basic+d.a+HRa+other allownces)
but some senior HR Professional having the rank of DGM HR in a big org. told Me that we are wrong he say that for ESI Deduction we can't take HRA. is he right.

second for esi coverage min. emp strength required is still 20 with power.


Posted 16th April 2010 From India, Delhi
Hi Manoj, You are correct. ESI deduction is made on gross salary including overtime and monthly incentive, if any.
Posted 16th April 2010 From India, Pune
Hai Manoj ESI should be deducted from Gross Salary. ESI coverage minimum employee strength is 20. MANOKAVIN
Posted 17th April 2010 From India, Coimbatore
Hi Manoj,

ESI is deducted on monthly gross salary. There is a definition for purpose as to which salary components constitutes wages for the purpose of ESI. Allowances like, Washing, Food, Uniform are not considered as wages.

Posted 17th April 2010 From India, Madras
Hello Mr. Manoj ESI is deducted on Gross Salary. Only washing allowance paid to employee is exempt from ESI deduction.
Posted 20th April 2010 From India, Bangalore
yes, only washing allowance is exempted from gross salary while calculating ESI deduction Regards, Girish
Posted 20th April 2010 From India, Kochi
Sub - section 22 of Section 2 of ESI Act clearly defines "wages", a reding of which will help clarify the doubts. All the same, travelling allowance and OT wages are to be exempted while calculating the "wages".


Sanu Soman
Posted 21st April 2010 From India, Madras

If money is paid directly to employees under the label "HRA", this will be treated as wage and contribution has to be paid. But if you provide a free house or hired house and company pay the rent directly to the land loard, no contribution is required for this, though for Income tax purpose this will have to be considered. Simply stated, what is provided in Kind is not wage and what is provided in cash is wage.

Regarding washing allowance, if wearing of Uniorm is compulsory for employee, then a reasonable amount as washing allowance is not required to be taken for payment of contribution. But if you provide a disproportionate amount under the head washing allowance or where washing allowance is pay with no uniform to be worn, it will be treated as wage and contribution should be paid.

About travelling allowance/conveyance allowance etc, I have posted exhaustively in the past, please search those posts. Reimbursement of duty related travel expences is not wage. Fixed amount payment without any production of travel documents, tickets etc is wage.

Any cash payment regularly under the head Food allowance is wage, but free food, or occasional reimbursement of actual food expences for additional or Overtime work or while on tour etc is not wage.

O.Abdul Hameed
Formerly Addl Commissioner ESIC
CEO Santhi Hospital,

Posted 11th August 2010 From India, Coimbatore
It has been enhanced from Rs. 70 to Rs. 100 with effect from 01st July, 2011., i.e. whose average daily wages is less than or equals to Rs.100, for them no need to pay 1.75%, they are called as Exempted Employees.

Nowadays, as soon as u enter the wages,all these points will be looked after by the system itself.

all the best....
Posted 10th August 2011 From India, Hyderabad
Dear All,
We are a mfg Co. & CTC break up provided by co is like this...1)Basic, 2)HRA, 3)Conveyance,4)Tel Allowance, 4)Spl Allowance, 5)P.F.-Employer Share,6)LTA or , 7)Medical or ESI, 8)Bonus
Could you pls confirm which part of above break up decide whether employee is applicable for ESI deduction ...
Your responsecwould help in clearing my concept...thnx & rgds
Posted 11th July 2013 From India, New Delhi
Dear Manoj ji,

This old posting of you came to my reading today.

I cent percent endorse the answer given by Shri. Abdul Hameed ji. Afterwards, Shri. Abdul Hameed ji is authority in the subject. We should expect more and more active participation by members like him and gain knowledge from them.

Answer to your second question is, till date in three states the employee strength for coverage is 20 coverable employees. They are Maharashtra, HP & Assam.
Posted 12th July 2013 From India, Mumbai


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