As most of the members of this forum are aware of, Labour ministry announced new changes in ESIC on 1st Jan 2017. These are as below,
1. The ESIC wages limit is revised from Rs.15,000/- to Rs.21,000/-.
2. The option is provided to employees to continue in ESIC even after his/her wages cross Rs.21,000/-.
This revision will bring 50 Lakhs more employees under ESIC scheme. Simultaneously, ESIC board is also expanding its geographical coverage.
As there is a saying, “You touch new territories as you spread (conquer)”.
I want to request Members on this group, don’t review the change in isolation and restrict to ESIC only.
Check the working as below,
Earlier ESIC wages limit was Rs.15,000/-. Annual ESIC wages were Rs.1,80,000/-.
With Revised ESIC wages of Rs.21,000/-, Annual ESIC wages would be Rs.2,52,000/-.
This is marginally above existing minimum slab of Income Tax (Rs.2,50,000/-).
I want to highlight, this occurring for the first time. In the past, ESIC wages limit was too low to cross Income Tax Slab.
Will this revision in ESIC now impact on Income Tax of employees? Is this a hypothetical case?
If in this year’s budget, Income tax slabs were to change, will it be applicable?
As per the second option in revision, this cannot be a hypothetical case.
Currently, as per income tax rules applicable to salaried employees, there is no provision to consider ESIC deduction in tax computation.
The statutory deductions, like Professional Tax, Provident Fund are deducted from the Annual Income of the employees. ESIC is also a mandatory statutory component, deemed to be deducted from Annual Income of employee. This will bring ESIC at par with Professional Tax and Provident Fund.
Due to increased wage limit more and more white collared employees are covered under ESIC. Also, once employee is member of ESIC, he/she can continue the membership even though wages are above threshold set by ESIC.
For illustrative purpose, consider an employee having
a. Gross Earning – Rs. 20,000/- (Rs. 12,000/- as Basic and Rs. 8,000/- as other earning components)
The employee will be having
b. Provident Fund – Rs. 1,440/- (12% of Rs.12,000/-)
c. Professional Tax – Rs. 200/- (in state where PT is applicable this may vary, here PT is considered of Maharashtra State)
d. ESIC – Rs. 150/- (1.75% of Rs. 20,000/-)
For this employee, in tax computation, Taxable Earning is reduced to the extent of deductions of Provident Fund and Professional Tax.
Monthly Taxable Earning will be Rs. 18,360/- (Rs. 20,000 – Rs. 1,440 – Rs. 200)
Current rules do not allow considering ESIC deduction in this computation.
Case 2
In case of employees with Gross Earnings - Rs. 21,000/-, ESIC will be Rs. 368/- monthly.
The maximum amount of deduction annually due to ESIC will be Rs. 4,416/- (Rs.368 x 12 months).
This amount is more than maximum deduction allowed under Professional Tax, wiz. Rs. 2,500/-.
It can also be noticed that, in cases where employees are paid Overtime, Incentives etc., gross earnings will be higher and ESIC deduction can be more than Rs.4,416/-.
Resolution:
ESIC is a scheme for Health benefits of employee and family members, the deduction of ESIC from employees’ salary should be considered under Section 80D of chapter VI-A. (Deduction for Medical Benefits)
As per the existing rules, this section has upper limit of Rs.25,000/- which can sufficiently adjust ESIC deduction.
Once this rule is formed, any further changes either in ESIC wages threshold or Section 80-D limit will be effective to all employees.
I request the esteem members of this forum to take up this issue to proper authority for the benefit of the employees.
1. The ESIC wages limit is revised from Rs.15,000/- to Rs.21,000/-.
2. The option is provided to employees to continue in ESIC even after his/her wages cross Rs.21,000/-.
This revision will bring 50 Lakhs more employees under ESIC scheme. Simultaneously, ESIC board is also expanding its geographical coverage.
As there is a saying, “You touch new territories as you spread (conquer)”.
I want to request Members on this group, don’t review the change in isolation and restrict to ESIC only.
Check the working as below,
Earlier ESIC wages limit was Rs.15,000/-. Annual ESIC wages were Rs.1,80,000/-.
With Revised ESIC wages of Rs.21,000/-, Annual ESIC wages would be Rs.2,52,000/-.
This is marginally above existing minimum slab of Income Tax (Rs.2,50,000/-).
I want to highlight, this occurring for the first time. In the past, ESIC wages limit was too low to cross Income Tax Slab.
Will this revision in ESIC now impact on Income Tax of employees? Is this a hypothetical case?
If in this year’s budget, Income tax slabs were to change, will it be applicable?
As per the second option in revision, this cannot be a hypothetical case.
Currently, as per income tax rules applicable to salaried employees, there is no provision to consider ESIC deduction in tax computation.
The statutory deductions, like Professional Tax, Provident Fund are deducted from the Annual Income of the employees. ESIC is also a mandatory statutory component, deemed to be deducted from Annual Income of employee. This will bring ESIC at par with Professional Tax and Provident Fund.
Due to increased wage limit more and more white collared employees are covered under ESIC. Also, once employee is member of ESIC, he/she can continue the membership even though wages are above threshold set by ESIC.
For illustrative purpose, consider an employee having
a. Gross Earning – Rs. 20,000/- (Rs. 12,000/- as Basic and Rs. 8,000/- as other earning components)
The employee will be having
b. Provident Fund – Rs. 1,440/- (12% of Rs.12,000/-)
c. Professional Tax – Rs. 200/- (in state where PT is applicable this may vary, here PT is considered of Maharashtra State)
d. ESIC – Rs. 150/- (1.75% of Rs. 20,000/-)
For this employee, in tax computation, Taxable Earning is reduced to the extent of deductions of Provident Fund and Professional Tax.
Monthly Taxable Earning will be Rs. 18,360/- (Rs. 20,000 – Rs. 1,440 – Rs. 200)
Current rules do not allow considering ESIC deduction in this computation.
Case 2
In case of employees with Gross Earnings - Rs. 21,000/-, ESIC will be Rs. 368/- monthly.
The maximum amount of deduction annually due to ESIC will be Rs. 4,416/- (Rs.368 x 12 months).
This amount is more than maximum deduction allowed under Professional Tax, wiz. Rs. 2,500/-.
It can also be noticed that, in cases where employees are paid Overtime, Incentives etc., gross earnings will be higher and ESIC deduction can be more than Rs.4,416/-.
Resolution:
ESIC is a scheme for Health benefits of employee and family members, the deduction of ESIC from employees’ salary should be considered under Section 80D of chapter VI-A. (Deduction for Medical Benefits)
As per the existing rules, this section has upper limit of Rs.25,000/- which can sufficiently adjust ESIC deduction.
Once this rule is formed, any further changes either in ESIC wages threshold or Section 80-D limit will be effective to all employees.
I request the esteem members of this forum to take up this issue to proper authority for the benefit of the employees.