The above case is to be categorized into three.
1. PF on arrears
2. ESI on arrears
3. Income Tax on arrears.
Regarding PF, it is directly applicable on arrears. But ESI is not applicable on arrears. I shall quote a statement by the ESI Coimbatore as "As and when any increase in the wages/ remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/ announcement. " Regarding Income Tax, arrears can be apportioned to corresponding years and Tax can be paid in compliance with the benefit of employee.
From India, Bangalore
From India, Delhi
From India, Bangalore
1) The ESI is payable if the
RC for corresponding
period is NOT generated.
2) The ESI is Not payable if
the RC for corresponding
period is generated.
For example :
!) If the arrears in respect
of wages failing from
April to Sept are paid
before 11th Oct than the
ESI is payable. However if
the arrears are paid after
submission of due date of
RC than the arrears are
We have so far signed three
settlement with labour union
and paid arrears with
retrospective effect and
paid arrears as under
Settlement was signed during
December and the arrears
were paid from January to
On arrears of wages from _
Janaury to March - No ESI
From April to Sept - No ESI paid.
From Oct onwards ESI paid For arrears of wages of Oct and November .
The same has been accepted by ESI Corporation.
If the contribution period is
From India, Mumbai
To supplement what has been already explained by Mr.abbasiti -
So far ESI is concerned you shouldn't have any doubt.
Reg. TDS on arrears - It's your option either 1) to rework the taxable income/tds/IT on the arrears component (appropriating the portion of your arrears received this year to the respective year's computation) by reopening the respective year(s) of your income and arrive at the diff.in tax (you will stand to benefit if your working results in an advantage) or 2) to take all the arrears in the year of receipt itself and arrive at the taxable income & TDS/IT, if this is advantageous to you. This is a privilege provided u/s 89 (1) of IT act. There are a few formats which would will enable you to arrive at the net result. If you require these format I'll attach in due course.
From India, Bangalore
For further clarification on ESI matter:
(pl.read this inf. duly updated, if any due to amendments subsequently) -
>> How wages are computed for payment of contribution?
The following items are taken into account for computation of wages for payment of contribution.
a) Basic Pay, Wages, Salary;
b) D.A./HRA/CCA/overtime/officiating allowance/Night shift allowance I efficiency allowance/ Heat, Gas, Dust allowance/ Education allowance/ Food & Tea allowance/ conveyance allowance;
c) Wages/salary/ pay for weekly off and public holidays;
d) Commission paid to sales staff;
e) Subsistence allowance paid to an employee during the period of suspension;
f) Attendance Bonus or incentive or exgratia in lieu of Attendance Bonus or production incentive;
g) Regular Honorarium or salary or remuneration paid to a Director;
h) Collection Batta paid to running staff.
i) Actual payments made towards leave salary, layoff compensation, or wages for strike period.
Any other remuneration paid or payable in cash to an employee if the terms of contract of employment, expressed or implied were fulfilled.
>> If the wages of an employee exceeds Rs. 15,000 in a month, can he be treated as not covered and deduction of contribution from his wages Is stopped?
If the wages of an employee (excluding remuneration for overtime work) exceeds the wage limit prescribed by the Central Government after start of contribution period, he continues to be an employee till the end of that contribution period and contribution is to be deducted and paid on the total wages earned by him.
>> What is the effect of Increase In wages from a retrospective date?
In case the wages of an employee is increased from a retrospective date resulting in crossing the wage limit prescribed, its effect on coverage of that employee is only after expiry of the Contribution period during the currency of which such increase is announced or declared. The contribution on enhanced wages is also payable from the month in which such increase is announced. There is no need to pay the contribution on the arrears for the period prior to the month of declaration/announcement/agreement.
>> Why contribution should be paid on the total wages beyond the wage ceiling limit when an employee crosses the wage limit prescribed by the Central Government?
Any employee who crosses the prescribed ceiling limit in any month at any time after commencement of the contribution period, continues to be an employee till the end of that contribution period.
Though there is a wage ceiling limit for coverage of an employee, there is no ceiling limit in the definition of wages for payment of contribution. Hence contribution is payable on the total wages without any ceiling limit.
>> Why over-time is to be excluded for wage ceiling limit for coverage of an employee?
Overtime is not a regular and continuous payment, but it is of an occasional nature. If overtime is also taken for wage limit for coverage of an employee, he may be going out of coverage for some time and again coming within the orbit of the scheme, when overtime is not there. This frequent Interruption from the scheme deprives him of the benefits admissible under the scheme even after making payment of contribution for a part of contribution period. To ensure continued security and protection, overtime is excluded for determining the wage ceiling for coverage of an employee. However, it is included for payment of contribution to cover the risk during the period he was on overtime work, and to enable him to draw cash benefits at an enhanced rate, as by adding overtime wages to his average daily wages, he is fitted in to the next higher slab in the Standard Benefit table in Rule 54 for claiming cash benefits.
THE ESIC ACT, 1948: WAGES
Please review paragraph 29(3) of the EPF Scheme. The contribution paya ble to the PF authorities by the employer is on the wages actually drawn and hence there will be no question of interest on the differential contribution paid on arrears when the arrears were actually paid and contribution thereon also remitted without delay.
(1) The contributions payable by the employer under the Scheme shall be at the rate of [ten per cent] of the [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] payable to each employee to whom the Scheme applies:
Provided that the above rate of contribution shall be [twelve] per cent in respect of any establishment or class of establishments which the Central Government may specify in the Official Gazette from time to time under the first proviso to sub-section (1) of section 6 of the Act.
(2) The contribution payable by the employee under the Scheme, shall be equal to the contribution payable by the employer in respect of such employee:
Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding [ten per cent] or [twelve per cent], as the case may be, of his basic wages, dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act;
(3) The contributions shall be calculated on the basis of [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis.............
If there is a delay in remitting to EPF A/cs. interest would accrue on the contribution till it's remitted.
IT - 89 (1) Relief formats (10 E & Annexures) :
Make use of this link to calculate your relief/workings under sec.89(1) (a ready made calculator is provided )and recheck with a competent IT consultant to make sure everything is in order and then proceed-
RELIEF u/s 89(1) CALCULATOR -AVAILABLE FOR DOWNLOAD #SIMPLETAXINDIA (OR)
Section 89(1) Salary Arrear Tax Relief Calculator
From India, Bangalore