In our company, one employee has taken a company loan, and the deduction will start from next month. He is requesting an 80% deduction from his gross salary. I would like to inquire whether this deduction request aligns with labor laws.
Best regards,
Parimal
From India, Ahmadabad
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4Best regards,
Parimal
From India, Ahmadabad
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If his salary is above Rs18000/-pm,no labour law will be violated if you deduct the amount as agreed by the employee. VARGHESE MATHEW
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Please refer to Section 7(3) of the Payment of Wages Act, 1936. This is the act that regulates the payment and deductions of wages. The act restricts the total recovery to 50% of the wages (75% in cases where recovery is partly to a Co-op society). This law is applicable only to wages below Rs 18,001 per month.
Regards,
Varghese Mathew
From India, Thiruvananthapuram
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Regards,
Varghese Mathew
From India, Thiruvananthapuram
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I have gone through clause 7(3) of the Payment of Wages Act, 1936. I have found it as you mentioned. However, I now have a query: Are all statutory deductions included in the 50% value? This would include deductions such as PF, ESI, PT, etc. Could you please clarify this urgently if possible?
Best regards,
Parimal
From India, Ahmadabad
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Best regards,
Parimal
From India, Ahmadabad
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No,Parimal all statutory deductions are not included. What is included are those listed in sub section 2 of sec 7 only. Varghese Mathew 9961266966
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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The concerned employee is requesting in writing to deduct 80% of his salary, which is acceptable. However, please note that you cannot deduct more than 1/3 of the salary without proper authorization. Keep the letter in his personal file for reference.
Best regards,
S. Rao
From India, Hyderabad
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Best regards,
S. Rao
From India, Hyderabad
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Wage Deduction Limits and Legal Considerations
Total deduction from wages or salary cannot exceed 50% of gross wages/salary (75% where it includes the amount of contribution to a cooperative society or repayment of a loan to a cooperative society). This includes all statutory dues (except perhaps income tax).
However, only items listed as deductible under sections 6 and 7 of the Payment of Wages Act can be deducted from salary. Any other amount deducted, even if below 50%, is illegal.
As stated by others, the Payment of Wages Act applies only up to a salary of ₹18,000 per month. However, it is good practice to follow similar rules for employees with salaries beyond that as well. It ensures the person has enough to sustain himself during the month.
From India, Mumbai
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Total deduction from wages or salary cannot exceed 50% of gross wages/salary (75% where it includes the amount of contribution to a cooperative society or repayment of a loan to a cooperative society). This includes all statutory dues (except perhaps income tax).
However, only items listed as deductible under sections 6 and 7 of the Payment of Wages Act can be deducted from salary. Any other amount deducted, even if below 50%, is illegal.
As stated by others, the Payment of Wages Act applies only up to a salary of ₹18,000 per month. However, it is good practice to follow similar rules for employees with salaries beyond that as well. It ensures the person has enough to sustain himself during the month.
From India, Mumbai
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If you are making a cash payment, do not show deductions on the paysheet. When making salary payments, deduct the loan amount and provide a separate receipt to the employee.
If you are issuing salary through a cheque or net payment, pay the full salary and obtain a separate cheque from the employee for loan repayment. Then, give the employee a separate receipt.
Regards,
Pramod Thakar
From India, Pune
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If you are issuing salary through a cheque or net payment, pay the full salary and obtain a separate cheque from the employee for loan repayment. Then, give the employee a separate receipt.
Regards,
Pramod Thakar
From India, Pune
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Understanding Deductions Under the Payment of Wages Act
Please note that under the Payment of Wages Act, any amount paid by the employee to the employer or his agent is equivalent to a deduction from the salary. Therefore, giving the full salary and then taking a part back is not going to solve any problem.
From India, Mumbai
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Please note that under the Payment of Wages Act, any amount paid by the employee to the employer or his agent is equivalent to a deduction from the salary. Therefore, giving the full salary and then taking a part back is not going to solve any problem.
From India, Mumbai
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I do agree. But if the employee himself is ready for deduction, we have to find a practical solution as well. As per my knowledge, the Act does not specify that an employee cannot repay a loan separately other than through salary or wages.
Regards,
Pramod Thakar
From India, Pune
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Regards,
Pramod Thakar
From India, Pune
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1. If the employee is not covered under the Payment of Wages Act, then I guess you can allow a deduction above 50% of gross wages/salary. Personally, I would be against using this as an escape clause, but I can't find anything legally preventing it.
2. If the employee is covered under POWA, then there is no option but to keep his total deductions below 50% of gross wages (as someone said before, this includes PF, ESIC). Since POWA specifically provides that payment back to the company is a deduction, such payment would amount to an illegal deduction under the act. So, my suggestion would be not to agree to the employee's suggestion of a higher deduction. The practical solution is to violate the law. If that is an option the HR department is comfortable with, then it's a different matter.
From India, Mumbai
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2. If the employee is covered under POWA, then there is no option but to keep his total deductions below 50% of gross wages (as someone said before, this includes PF, ESIC). Since POWA specifically provides that payment back to the company is a deduction, such payment would amount to an illegal deduction under the act. So, my suggestion would be not to agree to the employee's suggestion of a higher deduction. The practical solution is to violate the law. If that is an option the HR department is comfortable with, then it's a different matter.
From India, Mumbai
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I have gone through Section 7 under the Payment of Wages Act, 1936, and found that there is no information that all statutory deductions are included. I have also written the section for your reference. If there is any information, please highlight and inform me:
Deductions Which May Be Made From Wages
7. (1) Notwithstanding the provisions of the Railways Act, 1989 (24 of 1989), the wages of an employed person shall be paid to him without deductions of any kind except those authorized by or under this Act.
Explanation I - Every payment made by the employed person to the employer or his agent shall, for the purposes of this Act, be deemed to be a deduction from wages.
Explanation II - Any loss of wages resulting from the imposition, for good and sufficient cause, upon a person employed of any of the following penalties, namely:
- (i) the withholding of increment or promotion (including the stoppage of increment at an efficiency bar);
- (ii) the reduction to a lower post or time scale or to a lower stage in a time scale; or
- (iii) suspension,
shall not be deemed to be a deduction from wages in any case where the rules framed by the employer for the imposition of any such penalty are in conformity with the requirements, if any, which may be specified in this behalf by the appropriate Government by notification in the Official Gazette.
(2) Deductions from the wages of an employed person shall be made only in accordance with the provisions of this Act, and may be of the following kinds only, namely:
- (a) fines;
- (b) deductions for absence from duty;
- (c) deductions for damage to or loss of goods expressly entrusted to the employed person or custody; or for loss of money for which he is required to account, where such damage or loss is directly attributable to his neglect or default;
- (d) deductions for house accommodation supplied by the employer or by Government or any housing board set up under any law for the time being in force (whether the Government or the board is the employer or not) or any other authority engaged in the business of subsidizing house accommodation which may be specified in this behalf by the appropriate Government by notification in the Official Gazette;
- (e) deductions for such amenities and services supplied by the employer as the appropriate Government or any officer specified by it in this behalf may, by general or special order, authorize.
Explanation - The word "services" in this clause does not include the supply of tools and raw materials required for the purposes of employment;
- (f) deductions for recovery of advances of whatever nature (including advances for travelling allowance or conveyance allowance), and the interest due in respect thereof, or for adjustment of over-payments of wages;
- (ff) deductions for recovery of loans made from any fund constituted for the welfare of labour in accordance with the rules approved by the appropriate Government, and the interest due in respect thereof;
- (fff) deductions for recovery of loans granted for house-building or other purposes approved by the appropriate Government, and the interest due in respect thereof;
- (g) deductions of income-tax payable by the employed person;
- (h) deductions required to be made by order of a Court or other authority competent to make such order;
- (i) deductions for subscriptions to, and for repayment of advances from any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies or any recognized provident fund as defined in clause (38) of section 2 of the Income-tax Act, 1961 (43 of 1961), or any provident fund approved in this behalf by the appropriate Government, during the continuance of such approval;
- (j) deductions for payments to co-operative societies approved by the appropriate Government or any officer specified by it in this behalf or to a scheme of insurance maintained by the Indian Post Office; and
- (k) deductions, made with the written authorization of the person employed for payment of any premium on his life insurance policy to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or for the purchase of securities of the Government of India or of any State Government or for being deposited in any Post Office Savings Bank in furtherance of any savings scheme of any such Government;
- (kk) deductions made with the written authorization of the employed person, for the payment of his contribution to any fund constituted by the employer or a trade union registered under the Trade Unions Act, 1926 (16 of 1926) for the welfare of the employed persons or the members of their families, or both, and approved by the appropriate Government or any officer specified by it in this behalf, during the continuance of such approval;
- (kkk) deductions made, with the written authorization of the employed person, for payment of the fees payable by him for the membership of any trade union registered under the Trade Unions Act, 1926 (16 of 1926);
- (l) deductions for payment of insurance premia on Fidelity Guarantee Bonds;
- (m) deductions for recovery of losses sustained by a railway administration on account of acceptance by the employed person of counterfeit or base coins or mutilated or forged currency notes;
- (n) deductions for recovery of losses sustained by a railway administration on account of the failure of the employed person to invoice, to bill, to collect or to account for the appropriate charges due to that administration, whether in respect of fares, freight, demurrage, wharfage and cranage or in respect of sale of food in catering establishments or in respect of sale of commodities in grain shops or otherwise;
- (o) deductions for recovery of losses sustained by a railway administration on account of any rebates or refunds incorrectly granted by the employed person where such loss is directly attributable to his neglect or default;
- (p) deductions, made with the written authorization of the employed person, for contribution to the Prime Minister's National Relief Fund or to such other Fund as the Central Government may, by notification in the Official Gazette, specify; and
- (q) deductions for contributions to any insurance scheme framed by the Central Government for the benefit of its employees.
(3) Notwithstanding anything contained in this Act, the total amount of deductions which may be made under sub-section (2) in any wage period from the wages of any employed person shall not exceed:
- (i) in cases where such deductions are wholly or partly made for payments to co-operative societies under clause (j) of sub-section (2), seventy-five per cent of such wages, and
- (ii) in any other case, fifty per cent of such wages:
Provided that where the total deductions authorized under sub-section (2) exceed seventy-five per cent or, as the case may be, fifty per cent of the wages, the excess may be recovered in such manner as may be prescribed.
(4) Nothing contained in this section shall be construed as precluding the employer from recovering from the wages of the employed person or otherwise any amount payable by such person under any law for the time being in force other than the Railways Act, 1989 (24 of 1989).
Best regards,
Parimal
From India, Ahmadabad
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Deductions Which May Be Made From Wages
7. (1) Notwithstanding the provisions of the Railways Act, 1989 (24 of 1989), the wages of an employed person shall be paid to him without deductions of any kind except those authorized by or under this Act.
Explanation I - Every payment made by the employed person to the employer or his agent shall, for the purposes of this Act, be deemed to be a deduction from wages.
Explanation II - Any loss of wages resulting from the imposition, for good and sufficient cause, upon a person employed of any of the following penalties, namely:
- (i) the withholding of increment or promotion (including the stoppage of increment at an efficiency bar);
- (ii) the reduction to a lower post or time scale or to a lower stage in a time scale; or
- (iii) suspension,
shall not be deemed to be a deduction from wages in any case where the rules framed by the employer for the imposition of any such penalty are in conformity with the requirements, if any, which may be specified in this behalf by the appropriate Government by notification in the Official Gazette.
(2) Deductions from the wages of an employed person shall be made only in accordance with the provisions of this Act, and may be of the following kinds only, namely:
- (a) fines;
- (b) deductions for absence from duty;
- (c) deductions for damage to or loss of goods expressly entrusted to the employed person or custody; or for loss of money for which he is required to account, where such damage or loss is directly attributable to his neglect or default;
- (d) deductions for house accommodation supplied by the employer or by Government or any housing board set up under any law for the time being in force (whether the Government or the board is the employer or not) or any other authority engaged in the business of subsidizing house accommodation which may be specified in this behalf by the appropriate Government by notification in the Official Gazette;
- (e) deductions for such amenities and services supplied by the employer as the appropriate Government or any officer specified by it in this behalf may, by general or special order, authorize.
Explanation - The word "services" in this clause does not include the supply of tools and raw materials required for the purposes of employment;
- (f) deductions for recovery of advances of whatever nature (including advances for travelling allowance or conveyance allowance), and the interest due in respect thereof, or for adjustment of over-payments of wages;
- (ff) deductions for recovery of loans made from any fund constituted for the welfare of labour in accordance with the rules approved by the appropriate Government, and the interest due in respect thereof;
- (fff) deductions for recovery of loans granted for house-building or other purposes approved by the appropriate Government, and the interest due in respect thereof;
- (g) deductions of income-tax payable by the employed person;
- (h) deductions required to be made by order of a Court or other authority competent to make such order;
- (i) deductions for subscriptions to, and for repayment of advances from any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies or any recognized provident fund as defined in clause (38) of section 2 of the Income-tax Act, 1961 (43 of 1961), or any provident fund approved in this behalf by the appropriate Government, during the continuance of such approval;
- (j) deductions for payments to co-operative societies approved by the appropriate Government or any officer specified by it in this behalf or to a scheme of insurance maintained by the Indian Post Office; and
- (k) deductions, made with the written authorization of the person employed for payment of any premium on his life insurance policy to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or for the purchase of securities of the Government of India or of any State Government or for being deposited in any Post Office Savings Bank in furtherance of any savings scheme of any such Government;
- (kk) deductions made with the written authorization of the employed person, for the payment of his contribution to any fund constituted by the employer or a trade union registered under the Trade Unions Act, 1926 (16 of 1926) for the welfare of the employed persons or the members of their families, or both, and approved by the appropriate Government or any officer specified by it in this behalf, during the continuance of such approval;
- (kkk) deductions made, with the written authorization of the employed person, for payment of the fees payable by him for the membership of any trade union registered under the Trade Unions Act, 1926 (16 of 1926);
- (l) deductions for payment of insurance premia on Fidelity Guarantee Bonds;
- (m) deductions for recovery of losses sustained by a railway administration on account of acceptance by the employed person of counterfeit or base coins or mutilated or forged currency notes;
- (n) deductions for recovery of losses sustained by a railway administration on account of the failure of the employed person to invoice, to bill, to collect or to account for the appropriate charges due to that administration, whether in respect of fares, freight, demurrage, wharfage and cranage or in respect of sale of food in catering establishments or in respect of sale of commodities in grain shops or otherwise;
- (o) deductions for recovery of losses sustained by a railway administration on account of any rebates or refunds incorrectly granted by the employed person where such loss is directly attributable to his neglect or default;
- (p) deductions, made with the written authorization of the employed person, for contribution to the Prime Minister's National Relief Fund or to such other Fund as the Central Government may, by notification in the Official Gazette, specify; and
- (q) deductions for contributions to any insurance scheme framed by the Central Government for the benefit of its employees.
(3) Notwithstanding anything contained in this Act, the total amount of deductions which may be made under sub-section (2) in any wage period from the wages of any employed person shall not exceed:
- (i) in cases where such deductions are wholly or partly made for payments to co-operative societies under clause (j) of sub-section (2), seventy-five per cent of such wages, and
- (ii) in any other case, fifty per cent of such wages:
Provided that where the total deductions authorized under sub-section (2) exceed seventy-five per cent or, as the case may be, fifty per cent of the wages, the excess may be recovered in such manner as may be prescribed.
(4) Nothing contained in this section shall be construed as precluding the employer from recovering from the wages of the employed person or otherwise any amount payable by such person under any law for the time being in force other than the Railways Act, 1989 (24 of 1989).
Best regards,
Parimal
From India, Ahmadabad
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I didn't understand the point you are raising. There is a specific list of deductions that are provided in POWA. Other than that, no deductions are allowed. So which statutory deduction did you find missing?
From India, Mumbai
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From India, Mumbai
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I agree with Mr. Subba Rao's advice; the deduction needs to be 1/3 of his salary (Net Salary) to enable him and his dependents to survive for the month. Though he is giving in writing to deduct 80%, I am of the opinion that it is not appropriate.
Thanks & Regards,
Srinu
From India, Hyderabad
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Thanks & Regards,
Srinu
From India, Hyderabad
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