Need Help Understanding HR Terms Like Provident Fund and Income Tax – Can You Explain?

Understanding Key HR Terminologies

I require your help to understand certain terminologies in depth. Please assist me with the following:

1. PF - Provident Fund
2. ESI - Employee State Insurance
3. IT - Income Tax
4. Gratuity
5. PT - Professional Tax
6. Payroll
7. Medical benefits

Your guidance is much appreciated.

Regards,
Vineetha

Dear Vineetha,

The terminologies that you have mentioned actually come from various Acts and Rules made for Labour/Employees in India. It's not clear from your query what you want to know about these terminologies.

But let me try to help you understand as far as possible.

1. PF (Provident Fund): This word has been mentioned in the Act "The Employees' Provident Fund & Misc. Provisions Act, 1952". The Employees' Provident Fund & Misc. Provisions Act, 1952 provides for the institution of Compulsory Provident Fund, Pension Fund, and Deposit-Linked Insurance Fund for the benefit of employees in factories and other establishments. The Act is presently applicable to 173 industries and classes of establishments employing 20 or more persons. This Act is Social Security Legislation for the employees working in factories/establishments for the rainy days after retirement from service. Provident Fund contribution is 12% of Basic Wages of an employee from Employees' share from the total contribution of 24% (12% Employees' Contribution + 12 % Employers' Contribution), and another 1.61% is deducted as Administrative Charges. This 12% Employees' Contribution, which has been deposited under Provident Fund, will be available to the employees after retirement/superannuation from the service with interest (rate of interest decided by the Government of India from time to time) as a lump sum.

2. ESI (Employees' State Insurance): This word has been mentioned in the Act "The Employees' State Insurance Act, 1948". The Employees' State Insurance Act, 1948 is an Act to provide certain benefits to employees in case of sickness, maternity, and employment injury and to make provision for certain other matters in relation thereto. It provides for the grant of cash benefits to the employees in the recognized contingencies of sickness, maternity, and employment injury. It also provides for medical benefits, in kind, to the employees and their families. The Act is presently applicable to non-seasonal factories and certain other establishments. It's a beneficial piece of legislation intended for the above-mentioned causes. All the contributions (Employers' and Employees', 4.75% and 1.75% respectively) and all other moneys received (grants, donations, and gifts) on behalf of the ESI Corporation are paid into a Fund called Employees' State Insurance Fund, which is held and administered by the Corporation for the purpose of the Act.

3. IT (Income Tax): It is a tax imposed by the Government of India on anybody who earns income in India. This tax is levied on the strength of an Act called Income Tax Act, which was passed by the Parliament of India. Income earned in India is not limited to income earned within the geographical limits or boundaries of the country. Certain incomes are also deemed to have been earned in India although they may have been earned outside the country.

4. Gratuity: This word is mentioned in the Act "The Payment of Gratuity Act, 1972". This Act provides for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfield, plantation, ports, railway companies, shops, or other establishments and for matters connected therewith or incidental thereto. The act is a piece of welfare legislation, and its provisions are in the nature of social-security measures like ESI, Provident Fund, and Pension. This Act is applicable to every factory, mine, oilfield, plantation, port, railway company, shop, or establishment in which 10 or more persons are employed, or were employed, on any day of the preceding 12 months. Formula for the calculation of Gratuity: last drawn salary (basic + da) * years of service / 15, payable only after the completion of 5 years of service.

Professional Tax (PT), Payroll, and others will be discussed later.

Regards,

Jawed Alam.

Dear All,

Thanks for your comments.

Now regarding other words:

4. PT (Professional Tax): Professional Tax is a tax imposed on salaried individuals working in government or non-government offices. Professional Tax is deducted from the salary of the working class and is payable to the concerned State Government where the employee's office/company is situated. However, not all state governments impose Professional Tax. The rate depends on the states. Similar to Income tax being revenue earned by the Government of India, Professional Tax is revenue earned by State Governments. In some states, there is no Professional Tax. Professional Tax serves as a source of revenue for those falling under its jurisdiction, such as CAs, CSs, lawyers, technical and software service providers who earn income through rendering professional services.

There are various slabs of Professional Tax according to the pay range in different States of India. (Since I am not a finance professional, I can't contribute more).

5. Payroll: In a company, payroll is the financial presentation of salaries for all employees, wages, bonuses, and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period. Payroll plays a major role in a company for several reasons. The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and to ensure that withholdings and deductions are remitted promptly. This includes salary payments, tax withholdings, and deductions from a paycheck. From an HR perspective, Payroll is essential for making future decisions related to Human Resource Planning, Recruitment, and Wage & Salary administration/preparation. It also helps in determining whether and how much an employee's increment should be enhanced. There are basically two types of management used for Payroll: 1. Manual (traditional) 2. Computerized.

7. Medical benefits: Medical benefits depend on the Company's HR Policy. As per the Factories Act, there is a provision for medical facilities, but medical benefits go beyond these facilities, such as cashless medicines provided to employees, free medical treatment outdoors, medical leaves, medical bill reimbursement upon submission of actual documents, etc.

Regards,

Jawed Alam