Statutory compliance: While processing the payroll you need to consider statutory deductions. EPF, ESI, and TDS are some deductions done in this process. After deductions are done, the company remits the deducted amount to the relevant government agencies. The payment frequency depends on the due type. Dues are paid through challans. Once they are paid, it’s important to file a return.
ESI – Employees` state insurance deduction is done on the gross pay of the employees. The gross salary is the total income without deductions, that is earned by the employees while doing the job.
EPF – Employee Provident Fund is a retirement benefit and is available for all employees. The EPF deduction is done from a monthly salary and is saved in EPF account.
With these inputs, the employee’s tax liability is computed and TDS is calculated.
TDS – Tax Deducted At Source is a method of direct taxation and is applicable for various income groups. It’s deducted from the employee salary when the salary exceeds the maximum limit exempt from taxes. Some components that also affect the TDS deduction include allowances such as HRA, travel, leave travel, children education, and medical, etc. The net pay of employees is affected due to other deductions like taking care of handicapped children and parents, and interest on house loans.
HRA – House Rent Allowance is applicable for tax exemption depending on the location of the employee. They can claim tax exemption if the HRA is received from employer and pay rent for a rented house.
Travel – Travel payment up to INR 800 per month is tax-free.
Leave Travel- Tax exemption up to is available for two journeys done in a block of four calendar years.
Education- Exemption is given up to INR 100 per month per child and for up to two children of the employee.
Most of these payroll benefits impact the payroll calculations and you need to consider them for TDS deductions. Below are the current rates of each allowance and deductions in percentage:
PF (Provident Fund) Contributions from both employer & employee:
1. Contribution by an employee: Contribution towards EPF is deducted from employee’s salary i.e., 12% of basic salary and standard allowance of the employee
2. Contribution by an employer: The contribution made by an employer is 13% of the basic salary and standard allowance of the employee. However this 13% is further subdivided into:
• 3.67% of contribution towards Employees’ Provident Fund.
• 0.5% of contribution towards EPF Administration Charges.
• 0.5% of contribution towards EDLI Administration Charges.
• 8.33% of contribution towards Employees’ Pension Scheme.
Provident Fund scheme will be calculated up to ₹15,000 of the basic salary and standard allowance. If the Basic is above ₹15,000 PF will be constant. The employee with a monthly salary less than or equal to ₹15,000 will have to contribute mandatory towards EPF.
ESI Employees’ State Insurance Contributions from both employer & employee:
• Employee Contribution: 0.75 %
• Employer Contribution: 3.25 %
Employees’ State Insurance Scheme will be calculated on the gross salary upto ₹21,000. If Gross is above ₹21,000 ESI will be constant.