ESI Deduction - Income Tax.. CiteHR

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.



bharatgh -  Member Since: Jul 2008
Hi Manoj, You are correct. ESI deduction is made on gross salary including overtime and monthly incentive, if any.

MANOKAVIN -  Member Since: Jun 2007
Hai Manoj ESI should be deducted from Gross Salary. ESI coverage minimum employee strength is 20. MANOKAVIN

Gopalakrishnan -  Member Since: Jan 2007
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.


ashok_modi1978 -  Member Since: Jun 2009
Hello Mr. Manoj ESI is deducted on Gross Salary. Only washing allowance paid to employee is exempt from ESI deduction.

girishkrishnatheertham -  Member Since: Dec 2008
yes, only washing allowance is exempted from gross salary while calculating ESI deduction Regards, Girish

sanusoman -  Member Since: Jun 2009
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

oahamid -  Member Since: Sep 2007

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,

vsyamprasad -  Member Since: Mar 2009
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....

gr8sudhi -  Member Since: Feb 2011
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


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