Navigating Income Tax and PF for a Small Software Company: Need Advice on Employee Salary Management

Hi Guys,

I recently started a Pvt Ltd (total of 6 employees - software company). We currently do not have an HR admin within the company since it's quite small. The company employees' salary is below the income tax limit. The company's turnover is also below the income tax limit.

We have recruited one senior software engineer. His salary is fifty thousand per month (6 lakhs per annum). He is joining from the new year. Can you guys please suggest me regarding the following doubts?

1. Even though the newly recruited employee's salary is above the income tax limit, since the total employees are less than 20, I think no PF can be deducted from that newly recruited employee's salary. Am I correct?

2. Should I deduct and pay income tax from his salary to the IT department on a monthly basis or at the end of March 2009?

3. Can you guys please help me by providing a salary slip format for a Senior Software Engineer earning Rs 50,000 per month?

Thanks,
Devi

Reply:

Even though the newly recruited employee's salary is above the income tax limit, since the total number of employees is less than 20, I think no PF can be deducted from that newly recruited employee's salary. Am I correct?

Yes, there is no requirement to deduct the PF.

Should I deduct and pay income tax from his salary to the IT department on a monthly basis or by the end of March 2009?

Ask him to submit the Form 16 from his previous employer to recalculate the Gross Total Income and also ask for the investment planning till 31.03.09. A declaration form shall be filled and submitted by him to you. Finally, take into account his investments and projected salary up to 31.03.09 and calculate the income tax liability. Deduct the TDS from his salary and deposit it by the company. You have to file eTDS Return, and by the end of the FY 2008-09, issue the Form 16 to him before 30.04.09.

Can you please help me by providing a salary slip format for a Senior Software Engineer earning Rs 50,000 per month?

Yes, please review and make a plan for the percentage of each component of the salary.

Hi Devi,

As mentioned by Jain, it's correct that there is no need to deduct PF from the salary, and he has to submit the Form 16 for the year 2009.

Warmest Regards,
Mohan M. S.

Hi Devi,

Please find attached the file of the Salary Slip.

Warmest Regards,
Mohan M.S.

1. Even though the newly recruited employee's salary is above the income tax limit, since the total number of employees is less than 20, I think no PF can be deducted from that newly recruited employee's salary. Am I correct?

Once the number of employees exceeds 10, you need to deduct PF as per the latest law. In your case, there is no requirement to deduct the PF.

2. Should I deduct and pay income tax from his salary to the IT department on a monthly basis or at the end of March 2009?

Ask your employee to submit the Form 16 from his previous employer to recalculate the Gross Total Income (based on Form 16 and 3 months' salary you are going to pay) after considering allowances and investment planning till 31.03.09 if any. A declaration form shall be filled and submitted by him to you. Finally, consider his investments and projected salary up to 31.03.09 and calculate the income tax liability. Deduct the TDS from his salary and deposit it by the company. You have to file eTDS Return by the end of the FY 2008-09, and issue the Form 16 to him before 30.04.09.

3. Can you please provide me with a salary slip format for a Senior Software Engineer earning Rs 50,000 per month?

Generally, the format includes 30% basic on gross, 40% HRA on basic, and the rest as other allowances as per the applicable law.

Hi Devi,

As mentioned by our seniors, those are correct. You can provide LTA option for Rs. 20,000/- and Rs. 10,000/- per year for exemption from income tax. LTA can be claimed year by year. They need to submit bills for exemption from income tax.

Thanks and Regards,

Sree

Devi,

The reply for your query is:

1. Even though the newly recruited employee's salary is above the income tax limit, since the total number of employees is less than 20, I think no PF can be deducted from that newly recruited employee's salary. PF is optional. If you like, you can enroll for voluntary coverage.

2. Should I deduct and pay income tax from his salary to the IT department on a monthly basis or at the end of March 2009? Certainly, you have to deduct income tax and make payment to the department every month. Hope you have obtained a TAN Number, as you mentioned that you are in the bracket of the taxable limit.

3. Can you guys please help me by providing a salary slip format for a Senior Software Engineer earning Rs 50,000 per month? Pay structure should be constructed to benefit both employer and employee. Be alert! You will be covered under FBT even though your income is within the taxable limit. Please avail our professional service at a nominal cost to choose the package of Small Enterprises IT/ITES from us. For more details, call us at 28154246 and ask for Mr. Selvan, who will help you get complete HR legal solutions with PF, ESI, Professional Tax, eTDS, FBT, Income Tax, IEC registration, and STPI registration.

Thanks,
Devi

User input:
As per Section 10(5) of the Income Tax Act, 1961, you can claim exemption for only 2 journeys in a block of 4 calendar years. The current block year is 2006-2009, i.e., 1st Jan 2006 to Dec 2009.

Am I right?

Thanks & regards

Ashwini

[quote=sriharirajun;589318]
Hi Devi,
As mentioned by our seniors, those are correct. You can provide LTA option for 20,000/- and 10,000/- per year for exemption from income tax. LTA can be claimed year by year. They need to submit bills to claim the exemption from income tax.

Thanks and Regards

Sree

Hi Paystructure,

So far, I understand that the law which mentions "Employer having >10 Employees" was proposed in nature. Please provide details as you have mentioned "as per the latest law."

Thanks and Regards,
Sanjay

Devi,

Although the explanation provided below answers your queries to a large extent, I shall also guide you on how to get in touch with payroll vendors. There are plenty of vendors available, and for a small fee, they will take care of all the statutory compliances.

Cordially,
Preet

Hi,

My sincere thanks to all for your valuable replies. Please provide a reply to the following queries also:

1. Should I pay income tax deducted from that employee's salary to the IT department either on a monthly basis or at the end of March 2009 for the current financial year?

2. How and where to pay the professional tax of that employee?

With Thanks,
Devi

Hello Sir, I'm Manu from Lucknow. I have a small company (India) Pvt. Ltd. in New Delhi and Lucknow with 11 employees in our company. We have not deducted the PF until now, but now I want all employees to be registered in the PF office. Am I right? If it is correct, please guide me on the process for PF registration in the office. I need all the details of the process.

Thanking you,
Manu

Hi Dev,

Even though the newly recruited employee's salary is above the income tax limit, it is not compulsory to deduct PF for this employee because the total strength is less than 20.

Should I deduct and pay income tax from his salary to the IT department on a monthly basis or at the end of March 2010? It is your responsibility to deduct TDS every month. While it is not mandatory to deduct every month, you can even deduct at the end of the year. However, if you deduct the entire tax amount in one or two shots, the employee will feel a heavy burden and may struggle to manage his commitments. Therefore, the employer deducts TDS every month.

Jeeva