I am a teacher in a private school. My school is paying me arrears of Rs. 50,000, but they are deducting PF, ESI, and TDS on it. Is it correct on their part, or are they just fooling me? An urgent but authentic reply will be highly appreciated.
From India, Delhi
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From India, Delhi
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The above case is to be categorized into three:
1. PF on arrears
2. ESI on arrears
3. Income Tax on arrears.
PF on Arrears
Regarding PF, it is directly applicable on arrears.
ESI on Arrears
However, ESI is not applicable on arrears. I shall quote a statement by the ESI Coimbatore: "As and when any increase in the wages/remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced, and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/announcement."
Income Tax on Arrears
Regarding Income Tax, arrears can be apportioned to corresponding years, and tax can be paid in compliance with the benefit of the employee.
Regards,
Abbas P.S
From India, Bangalore
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5301. PF on arrears
2. ESI on arrears
3. Income Tax on arrears.
PF on Arrears
Regarding PF, it is directly applicable on arrears.
ESI on Arrears
However, ESI is not applicable on arrears. I shall quote a statement by the ESI Coimbatore: "As and when any increase in the wages/remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced, and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/announcement."
Income Tax on Arrears
Regarding Income Tax, arrears can be apportioned to corresponding years, and tax can be paid in compliance with the benefit of the employee.
Regards,
Abbas P.S
From India, Bangalore
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Are there any judgments available for not paying ESIC on arrears? In my opinion, we should pay PF and ESI on arrears. Otherwise, every company will declare the appraisal with due dates and take advantage of ESIC.
Regards,
Ashish Thakkar
From India, Pune
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Regards,
Ashish Thakkar
From India, Pune
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Thanks for the prompt replies.
Clarification on TDS and Salary Components
Please shed some light on the TDS part. If it is considered as a part of the current salary, will it be beneficial for me? Or should I instruct my school to include it as arrears in my Form 16? I hope this won't cause any problems with the IT Department if it is treated as a component of the current salary.
Regards,
From India, Delhi
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Clarification on TDS and Salary Components
Please shed some light on the TDS part. If it is considered as a part of the current salary, will it be beneficial for me? Or should I instruct my school to include it as arrears in my Form 16? I hope this won't cause any problems with the IT Department if it is treated as a component of the current salary.
Regards,
From India, Delhi
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You may either take the arrears as the current year's income or divide it into the corresponding year's salary. Then calculate income tax using both methods and pay tax based on the lesser amount. Both methods are acceptable to ESI.
Regards,
Abbas P.S
From India, Bangalore
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Regards,
Abbas P.S
From India, Bangalore
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Are there any judgments available for not paying ESIC on arrears? In my opinion, we should pay PF and ESI on arrears. Otherwise, every company will declare the appraisal with due dates and take the benefit of ESIC.
I have already quoted the ESI Coimbatore in this regard as "As and when any increase in the wages/remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced, and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/announcement." The ESI has the sole authority to clear their provisions/requirements. Then why do you go for the judgment?
Regards,
Ashish Thakkar
From India, Bangalore
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I have already quoted the ESI Coimbatore in this regard as "As and when any increase in the wages/remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced, and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/announcement." The ESI has the sole authority to clear their provisions/requirements. Then why do you go for the judgment?
Regards,
Ashish Thakkar
From India, Bangalore
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Thanks for the prompt replies. Please shed some light on the TDS part. Is it beneficial for me if it is considered as a part of the current salary, or should I ask my school to include it as arrears in my Form 16? I hope this won't cause any issues with the IT Department if it is included in the current salary!
Understanding TDS on Arrears
To supplement what has already been explained by Mr. abbasiti - So far as ESI is concerned, you shouldn't have any doubts. Regarding TDS on arrears - it's your choice:
1. You can rework the taxable income/TDS/IT on the arrears component by allocating the portion of your arrears received this year to the respective year's computation. This involves reopening the respective year(s) of your income to determine the tax difference (you will benefit if your adjustments result in an advantage).
2. Alternatively, you can choose to take all the arrears in the year of receipt itself and determine the taxable income, TDS/IT, if it is advantageous to you. This option is provided under section 89(1) of the IT Act. There are specific formats that will help you arrive at the net result. If you need these formats, I'll attach them shortly.
From India, Bangalore
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Understanding TDS on Arrears
To supplement what has already been explained by Mr. abbasiti - So far as ESI is concerned, you shouldn't have any doubts. Regarding TDS on arrears - it's your choice:
1. You can rework the taxable income/TDS/IT on the arrears component by allocating the portion of your arrears received this year to the respective year's computation. This involves reopening the respective year(s) of your income to determine the tax difference (you will benefit if your adjustments result in an advantage).
2. Alternatively, you can choose to take all the arrears in the year of receipt itself and determine the taxable income, TDS/IT, if it is advantageous to you. This option is provided under section 89(1) of the IT Act. There are specific formats that will help you arrive at the net result. If you need these formats, I'll attach them shortly.
From India, Bangalore
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For further clarification on ESI matters:
Wages
▶️ **How are wages computed for the payment of contribution?**
The following items are taken into account for the computation of wages for the payment of contribution:
- Basic Pay, Wages, Salary;
- D.A./HRA/CCA/overtime/officiating allowance/Night shift allowance/efficiency allowance/Heat, Gas, Dust allowance/Education allowance/Food & Tea allowance/conveyance allowance;
- Wages/salary/pay for weekly off and public holidays;
- Commission paid to sales staff;
- Subsistence allowance paid to an employee during the period of suspension;
- Attendance Bonus or incentive or ex gratia in lieu of Attendance Bonus or production incentive;
- Regular Honorarium or salary or remuneration paid to a Director;
- Collection Batta paid to running staff;
- Actual payments made towards leave salary, layoff compensation, or wages for the strike period.
Any other remuneration paid or payable in cash to an employee if the terms of the contract of employment, expressed or implied, were fulfilled.
▶️ **If the wages of an employee exceed Rs. 15,000 in a month, can he be treated as not covered, and deduction of contribution from his wages is stopped?**
If the wages of an employee (excluding remuneration for overtime work) exceed the wage limit prescribed by the Central Government after the start of the contribution period, he continues to be an employee until the end of that contribution period, and contribution is to be deducted and paid on the total wages earned by him.
▶️ **What is the effect of an increase in wages from a retrospective date?**
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.
▶️ **Why should the contribution be paid on the total wages beyond the wage ceiling limit when an employee crosses the wage limit prescribed by the Central Government?**
Any employee who crosses the prescribed ceiling limit in any month at any time after the commencement of the contribution period continues to be an employee until the end of that contribution period.
Though there is a wage ceiling limit for the coverage of an employee, there is no ceiling limit in the definition of wages for the payment of contribution. Hence, contribution is payable on the total wages without any ceiling limit.
▶️ **Why is overtime to be excluded for the wage ceiling limit for the coverage of an employee?**
Overtime is not a regular and continuous payment, but it is of an occasional nature. If overtime is also taken for the wage limit for the coverage of an employee, he may be going out of coverage for some time and again coming within the orbit of the scheme when overtime is not there. This frequent interruption from the scheme deprives him of the benefits admissible under the scheme even after making payment of contribution for a part of the contribution period. To ensure continued security and protection, overtime is excluded for determining the wage ceiling for the coverage of an employee. However, it is included for the payment of contribution to cover the risk during the period he was on overtime work and to enable him to draw cash benefits at an enhanced rate, as by adding overtime wages to his average daily wages, he is fitted into the next higher slab in the Standard Benefit table in Rule 54 for claiming cash benefits.
[THE ESIC ACT, 1948: WAGES](http://esia1948.blogspot.in/2011/04/wages.html)
EPF
Please review paragraph 29(3) of the EPF Scheme. The contribution payable to the PF authorities by the employer is on the wages actually drawn, and hence there will be no question of interest on the differential contribution paid on arrears when the arrears were actually paid and contribution thereon also remitted without delay.
29. Contributions:
1. The contributions payable by the employer under the Scheme shall be at the rate of [ten per cent] of the [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] payable to each employee to whom the Scheme applies:
Provided that the above rate of contribution shall be [twelve] per cent in respect of any establishment or class of establishments which the Central Government may specify in the Official Gazette from time to time under the first proviso to sub-section (1) of section 6 of the Act.
2. The contribution payable by the employee under the Scheme shall be equal to the contribution payable by the employer in respect of such employee:
Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding [ten per cent] or [twelve per cent], as the case may be, of his basic wages, dearness allowance, and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act;
3. The contributions shall be calculated on the basis of [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] actually drawn during the whole month, whether paid on a daily, weekly, fortnightly, or monthly basis.
If there is a delay in remitting to EPF A/cs, interest would accrue on the contribution until it's remitted.
IT - 89 (1) Relief formats (10 E & Annexures)
Make use of this link to calculate your relief/workings under sec. 89(1) (a ready-made calculator is provided) and recheck with a competent IT consultant to make sure everything is in order and then proceed:
[RELIEF u/s 89(1) CALCULATOR - AVAILABLE FOR DOWNLOAD #SIMPLETAXINDIA](http://www.simpletaxindia.net/2010/01/relief-under-891-salary-arrear-advance.html) (OR)
[Section 89(1) Salary Arrear Tax Relief Calculator](http://taxguru.in/income-tax/download-section-891-salary-arrear-tax-relief-calculator-ay-201213-fy-201112.html)
From India, Bangalore
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Wages
▶️ **How are wages computed for the payment of contribution?**
The following items are taken into account for the computation of wages for the payment of contribution:
- Basic Pay, Wages, Salary;
- D.A./HRA/CCA/overtime/officiating allowance/Night shift allowance/efficiency allowance/Heat, Gas, Dust allowance/Education allowance/Food & Tea allowance/conveyance allowance;
- Wages/salary/pay for weekly off and public holidays;
- Commission paid to sales staff;
- Subsistence allowance paid to an employee during the period of suspension;
- Attendance Bonus or incentive or ex gratia in lieu of Attendance Bonus or production incentive;
- Regular Honorarium or salary or remuneration paid to a Director;
- Collection Batta paid to running staff;
- Actual payments made towards leave salary, layoff compensation, or wages for the strike period.
Any other remuneration paid or payable in cash to an employee if the terms of the contract of employment, expressed or implied, were fulfilled.
▶️ **If the wages of an employee exceed Rs. 15,000 in a month, can he be treated as not covered, and deduction of contribution from his wages is stopped?**
If the wages of an employee (excluding remuneration for overtime work) exceed the wage limit prescribed by the Central Government after the start of the contribution period, he continues to be an employee until the end of that contribution period, and contribution is to be deducted and paid on the total wages earned by him.
▶️ **What is the effect of an increase in wages from a retrospective date?**
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.
▶️ **Why should the contribution be paid on the total wages beyond the wage ceiling limit when an employee crosses the wage limit prescribed by the Central Government?**
Any employee who crosses the prescribed ceiling limit in any month at any time after the commencement of the contribution period continues to be an employee until the end of that contribution period.
Though there is a wage ceiling limit for the coverage of an employee, there is no ceiling limit in the definition of wages for the payment of contribution. Hence, contribution is payable on the total wages without any ceiling limit.
▶️ **Why is overtime to be excluded for the wage ceiling limit for the coverage of an employee?**
Overtime is not a regular and continuous payment, but it is of an occasional nature. If overtime is also taken for the wage limit for the coverage of an employee, he may be going out of coverage for some time and again coming within the orbit of the scheme when overtime is not there. This frequent interruption from the scheme deprives him of the benefits admissible under the scheme even after making payment of contribution for a part of the contribution period. To ensure continued security and protection, overtime is excluded for determining the wage ceiling for the coverage of an employee. However, it is included for the payment of contribution to cover the risk during the period he was on overtime work and to enable him to draw cash benefits at an enhanced rate, as by adding overtime wages to his average daily wages, he is fitted into the next higher slab in the Standard Benefit table in Rule 54 for claiming cash benefits.
[THE ESIC ACT, 1948: WAGES](http://esia1948.blogspot.in/2011/04/wages.html)
EPF
Please review paragraph 29(3) of the EPF Scheme. The contribution payable to the PF authorities by the employer is on the wages actually drawn, and hence there will be no question of interest on the differential contribution paid on arrears when the arrears were actually paid and contribution thereon also remitted without delay.
29. Contributions:
1. The contributions payable by the employer under the Scheme shall be at the rate of [ten per cent] of the [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] payable to each employee to whom the Scheme applies:
Provided that the above rate of contribution shall be [twelve] per cent in respect of any establishment or class of establishments which the Central Government may specify in the Official Gazette from time to time under the first proviso to sub-section (1) of section 6 of the Act.
2. The contribution payable by the employee under the Scheme shall be equal to the contribution payable by the employer in respect of such employee:
Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding [ten per cent] or [twelve per cent], as the case may be, of his basic wages, dearness allowance, and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act;
3. The contributions shall be calculated on the basis of [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] actually drawn during the whole month, whether paid on a daily, weekly, fortnightly, or monthly basis.
If there is a delay in remitting to EPF A/cs, interest would accrue on the contribution until it's remitted.
IT - 89 (1) Relief formats (10 E & Annexures)
Make use of this link to calculate your relief/workings under sec. 89(1) (a ready-made calculator is provided) and recheck with a competent IT consultant to make sure everything is in order and then proceed:
[RELIEF u/s 89(1) CALCULATOR - AVAILABLE FOR DOWNLOAD #SIMPLETAXINDIA](http://www.simpletaxindia.net/2010/01/relief-under-891-salary-arrear-advance.html) (OR)
[Section 89(1) Salary Arrear Tax Relief Calculator](http://taxguru.in/income-tax/download-section-891-salary-arrear-tax-relief-calculator-ay-201213-fy-201112.html)
From India, Bangalore
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