Understanding ESI Exemption: Does a Salary Increase Affect the Current or Next Month?

If an employee's salary is Rs. 12,000 in the month of June and it was increased by Rs. 4,000 to become Rs. 16,000 in the month of July, which month will be applicable for the exemption of ESI? Is it the next month or the end of that contribution period?

See, as ESIC wages are up to ₹15,000, then during that month, when wages exceed ₹15,000 per month, they are excluded.

Thank you for your post, but there is great confusion because, as I know, no employee can be exempted in the middle of a contribution period except in cases of termination or retirement. Kindly provide me with a detailed explanation.

As you mentioned, an employee who is covered under ESI in the month of April, even after a salary revision (if they receive a one lakh rupee increment), remains covered under ESI until September. This is because the contribution period spans from April to September. If you fail to contribute the required amounts from both the employee and employer, you may receive a notice from ESI authorities during an inspection of your establishment.

Regards,
Y. Gowree Parameswara Rao
[Phone Number Removed For Privacy Reasons]

Employee Wage Limit and ESI Contribution

1. If the wages of an employee (excluding remuneration for overtime work) exceed the wage limit prescribed by the Central Government after April or October for the contribution periods from April to September, and October to March, he continues to be an employee till the end of that contribution period. Contribution is to be deducted and paid on the total wages earned by him.

2. In case the wages of an employee are increased from a retrospective date resulting in crossing the wage limit prescribed, its effect on the coverage of that employee is only after the 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.

Please note that once the ESI Contribution is paid in the base month of the ESI Contribution Period, the ESI Contribution will be paid for the full contribution period. In your case, the salary of the employee in the month of June is Rs. 12,000.00; hence, you have paid the ESI Contribution up to June. If his salary is increased to Rs. 16,000.00, the ESI contribution will be paid up to September. He will be exempted from the ESI Contribution in the month of October.

ESIC Contribution Base Months

ESIC Contribution Base Months Are: April & October of every year. Contribution Periods are:
1. April to September
2. October to March.

Regards,
U.C. Kaushik

Please note that no employee can be exempted in the mid-term. If an employee is already covered under ESI in the first month of the Half-Yearly Return, he can only be exempted in the next Half-Yearly Return.

Regards,
Deepak Sharma

If the employee, who is covered under ESI in the month of April, experiences any revision in salary between April and September, they will remain covered under ESIC until September. It is necessary to deduct and deposit both contributions as the contribution period spans from April to September. Failure to contribute the employee and employer amounts may result in the employer needing to settle all liabilities during an inspection conducted by ESI.

Regards,
Ravinder Singh
[Phone Number Removed For Privacy Reasons]

Dear Amitmadi, ESI contribution is deducted from your gross salary, not from CTC. If your gross salary exceeds 15,000 per month, then ESI contribution will not be applicable.

Determining ESI Applicability

So, firstly, determine your CTC, gross, and net take-home salary. Then, calculate whether your gross salary is less than 15,000 or greater. The last date for ESI challan submission is the 21st of the subsequent month. This means that the salary for July, received in August, will have ESI contributions due by the 21st of August.

Regards, Ashish Dwived

[QUOTE=Amitmdi;1897416]

IF AN EMPLOYEE'S SALARY IS Rs. 12,000/= IN THE MONTH OF JUNE, AND IT IS INCREASED BY Rs. 4,000/= TO BECOME Rs. 16,000/= IN THE MONTH OF JULY.

WHICH MONTH WILL BE APPLICABLE FOR THE EXEMPTION OF ESI? IS IT THE NEXT MONTH OR THE END OF THAT CONTRIBUTION PERIOD?

Dear Amit,
ESIC limit is Rs. 15,000/- per month of gross salary for ESI contribution. If the salary increases to Rs. 16,000/- in the next month, then ESI deduction will apply to that contribution period. The contribution period is from April 2012 to September 2012, and at the end of September 2012, ESI will be deducted, making the Rs. 16,000/- salary per month non-taxable.

Thanks and Regards,
Kaushik Patel
Manager HR

ESI Coverage Exemption Timeline

The employee will be exempt from ESI coverage after September because the contribution periods are from April to September and October to March. He will have to pay contributions from April to September.

Thanks,

RK Jha

In my opinion, if the increment was due but not paid in April for any reason and was paid in the subsequent month with arrears, you can exempt that person from the month you paid the arrears.

An employee can be exempt from ESI in the months of October and April if wages exceed Rs. 15,000.

Regards,
Thakur

The contribution option "exceeds limit" is not accepted except in April and October. Therefore, it is mandatory to deduct ESI up to September if an employee exceeds the ESI limit of 15,000 in the month of June.

Thank you,
Thakur

For the month of June, salary payable in July, you have to pay his ESI contribution. You will have to exclude him from ESI for the July salary payable in August, but continue his PF.

Regards

If an employee's contribution starts at a single time in the Half-Yearly Return, then their contribution is compulsory for regularity until the end of the half-year return. After completing the return, subsequent months are exempted.

For example, if there is an employee whose salary is $12,000 in the month of December 2010, but in the next month, January 2011, their salary increases to $16,000 due to an increment, then deductions are made only until December 2010 since this marks the end of the return period.

However, if an employee's salary is $12,000 in the month of January 2011, and in the following month, February 2011, their salary increases to $16,000 through an increment, then deductions are made only until June 2011 as this signifies the end of the half-yearly return.

Regards,
Gyandeep