Small Business Dilemma: Is TDS Deduction and PF Registration Necessary for My Firm?

Hi Friends, I have a proprietary firm with 7 employees on full-time salary, each earning a minimum of INR 20,000 per month. We are registered under the Service Tax Act. Do we need to deduct TDS on salaries, and is PF compulsory for us to apply for? I need your guidance on the same issue.

Regards, Sumeet

Whatever the organization, if the wages fall under income tax slabs, you should deduct TDS. However, for a salary of ₹20,000, TDS is not applicable if you can wisely prepare the salary structure.

EPF Act Applicability

Please note that the EPF Act is applicable wherever 20 or more employees are working, including direct and indirect employment through contractors or on a contract basis. In your case, if you have more than 7 staff members or any other employees appointed indirectly, the EPF Act would apply accordingly.

TDS Applicability

Secondly, TDS is applicable based on individual tax planning. In your current scenario for the financial year 2012-13, the annual salary income of an individual is Rs. 20,000/- X 12 = Rs. 2,40,000/- (plus any bonus payable/due). The first 2 lakhs are exempt, and on the balance of Rs. 40,000/-, the tax liability would be Rs. 4,120/-. Monthly TDS of Rs. 344/- will need to be deducted from April 2012 to March 2013 in equal installments. You need to obtain a TIN No. for the same.

Feel free to contact for more details.

Regards,
Pramod Thakar & Associates
Pune
Email: [Email Removed For Privacy Reasons]
Phone: [Phone Number Removed For Privacy Reasons]

Thanks for your advice. We are showing the salary structure as below for an employee with a package of 22,000 PM:

- **Basic:** 65% (14,300)
- **HRA:** 10% (2,200)
- **City Compensatory Allowance:** 5% (1,100)
- **Conveyance:** 5% (1,100)
- **Medical:** 5% (1,100)
- **Education:** 5% (1,100)
- **LTC:** 5% (1,100)

The gross and net payable is 22,000/- only, and no PF as we have never applied for EPF. Is our calculation correct or not? We are registered only under the Service Tax Act.

Regards,
Sumeet

Consultation for Salary Structure and HR Matters

You need to design a salary structure and also consider other HR and taxation matters with proper consultation. If you are from Pune, you may consult us on this matter, or you should seek advice from a labor consultant in your hometown.

Regards,
Pramod Thakar
[Email Removed For Privacy Reasons]

Considerations for Salary Breakup and Tax Exemptions

Salary breakup should be made after taking income tax into consideration. You should have at least 40% of the basic salary as HRA in other towns like Pune, and in metro areas, you can have HRA up to 50%, which is tax-exempted. Secondly, conveyance should not be more than 800 per month because that is tax-exempted. Besides this, you can have medical reimbursement up to 15,000 per year, which is tax-exempted.

Hey Pramod Thakar,

I am working with a company and getting a salary of Rs. 22,000, but my boss gives it in cash with no bank transaction. I deposit my salary in the bank account as and when I receive it. My company doesn't provide a salary slip, and we don't have a TDS, PF, EPS kind of system. But if I want to change my job to a good firm, what documents should I retain with me? Also, if possible, could you provide the salary structure of Rs. 22,000 where no TDS or EPF is mentioned? Please reply as soon as possible.