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.
From India, Mumbai
Acknowledge(0)
Amend(0)
81. 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.
From India, Mumbai
Acknowledge(0)Amend(0)
EPF contribution of employee is already allowed deduction u/s 80C HRA component is fully non taxable so where is tax on 21000/- pm salary?
Acknowledge(0)Amend(0)
Acknowledge(0)Amend(0)
Dear Mr. Vidyesh Kul,
I think the information you provided, such as "The option is provided to employees to continue in ESIC even after his/her wages cross Rs.21,000/-," appears to be incorrect. I hope you will upload some gazette notification or other relevant documents that explain the option allowed to employees to continue ESI coverage even after their wages exceed the statutory limit for the information of members and seniors in this forum.
I am also doubtful whether an employee receiving wages of Rs. 21,000/- per month throughout a financial year and having savings in the form of deductions related to EPF Contributions, ESI Contributions, and other expenses like Transport Allowance or HRA, will be required to pay any income tax. I hope you will share the basis of your calculations and suggestions with the seniors and experts in this forum.
Furthermore, I believe you could have submitted your suggestions to the appropriate government body, i.e., the Ministry of Labour & Employment (Central Govt.), in response to their draft intention notification dated 6/10/2016, before the final notification regarding the enhancement of the wage ceiling was issued by the government. This could have been done when the government sought views and objections from the general public.
Thank you.
From India, Noida
Acknowledge(0)Amend(0)
I think the information you provided, such as "The option is provided to employees to continue in ESIC even after his/her wages cross Rs.21,000/-," appears to be incorrect. I hope you will upload some gazette notification or other relevant documents that explain the option allowed to employees to continue ESI coverage even after their wages exceed the statutory limit for the information of members and seniors in this forum.
I am also doubtful whether an employee receiving wages of Rs. 21,000/- per month throughout a financial year and having savings in the form of deductions related to EPF Contributions, ESI Contributions, and other expenses like Transport Allowance or HRA, will be required to pay any income tax. I hope you will share the basis of your calculations and suggestions with the seniors and experts in this forum.
Furthermore, I believe you could have submitted your suggestions to the appropriate government body, i.e., the Ministry of Labour & Employment (Central Govt.), in response to their draft intention notification dated 6/10/2016, before the final notification regarding the enhancement of the wage ceiling was issued by the government. This could have been done when the government sought views and objections from the general public.
Thank you.
From India, Noida
Acknowledge(0)Amend(0)
There was a plan to include employees over & above the threshold wage ceiling of 21K but to my knowledge, no gazette notification has been issued. M.V.Kannan
From India, Madras
Acknowledge(0)Amend(0)
From India, Madras
Acknowledge(0)Amend(0)
Dear Harsh Kumar Mehta Sir,
Thank you for your reply.
I admit, I could not locate the Gazette notification on the continuation of membership after crossing the threshold limit. On Income Tax: Though an employee's ESIC Wages are Rs. 21,000/-, his/her Gross Earnings can be more than Rs. 21,000/- due to Sales Incentives or overtime. For these employees, ESIC will be more than Rs. 368/-. I have confirmed with payroll experts that this is not a hypothetical or an academic case; the employee is covered under ESIC and is paying Income Tax.
Secondly, ESIC limit is increasing periodically. One cannot keep hoping that the rules applicable to other components will keep employees out of Taxable limits. Also, ESIC is a mandatory statutory deduction that should have the same treatment in Income Tax as Provident Fund and Professional Tax.
I did submit my suggestion during the period of suggestions to the concerned authority. Also, I am writing to the Employees' representative on the ESIC board.
From India, Mumbai
Acknowledge(0)Amend(0)
Thank you for your reply.
I admit, I could not locate the Gazette notification on the continuation of membership after crossing the threshold limit. On Income Tax: Though an employee's ESIC Wages are Rs. 21,000/-, his/her Gross Earnings can be more than Rs. 21,000/- due to Sales Incentives or overtime. For these employees, ESIC will be more than Rs. 368/-. I have confirmed with payroll experts that this is not a hypothetical or an academic case; the employee is covered under ESIC and is paying Income Tax.
Secondly, ESIC limit is increasing periodically. One cannot keep hoping that the rules applicable to other components will keep employees out of Taxable limits. Also, ESIC is a mandatory statutory deduction that should have the same treatment in Income Tax as Provident Fund and Professional Tax.
I did submit my suggestion during the period of suggestions to the concerned authority. Also, I am writing to the Employees' representative on the ESIC board.
From India, Mumbai
Acknowledge(0)Amend(0)
A very simple logic: 21000 x 12 = 252000.
A simple consideration of HRA: 20% of gross or 25% of basic = 21000 x 20% = 4200 x 12 = 50400.
Say the member pays EPF on 15000, so 15000 x 12% = 1800 x 12 = 21600.
252000 - (50400 + 21600) = 180000.
If sales incentive is fixed in nature per month, then simply, he will get excluded from ESIC scheme, as it would come as part of the salary.
Acknowledge(0)Amend(0)
A simple consideration of HRA: 20% of gross or 25% of basic = 21000 x 20% = 4200 x 12 = 50400.
Say the member pays EPF on 15000, so 15000 x 12% = 1800 x 12 = 21600.
252000 - (50400 + 21600) = 180000.
If sales incentive is fixed in nature per month, then simply, he will get excluded from ESIC scheme, as it would come as part of the salary.
Acknowledge(0)Amend(0)
Dear Mr. Kul,
Thank you for your reply. I may submit that many times the proposals regarding amendments, etc., are published by various departments/government organizations in newspapers. However, they only acquire the force of law after gazette notifications, and that too after being passed/approved by competent governments/parliament/Hon'ble President (as per legal requirement). I suggest that you do not treat such proposals as final until the final gazette notifications of amendments, etc., are published. Often, Hon'ble ministers give interviews in various newspapers, and these interviews are published in a way that suggests the contents are final, when in reality, the position remains unchanged. For example, the amendment in the Maternity Benefit Act, 1961, has not yet been passed by Parliament, despite the Hon'ble Minister giving interviews on the subject multiple times.
Further, I believe that Income Tax provisions are entirely different from the ESI Act, 1948, and have no relation to each other. Income Tax provisions are extensive, spread out by various rules, and serve a different purpose. If an employee receives amounts for incentives and overtime, and their total taxable income falls within the taxable slab, I think the government is justified in charging income tax.
Thank you.
From India, Noida
Acknowledge(0)Amend(0)
Thank you for your reply. I may submit that many times the proposals regarding amendments, etc., are published by various departments/government organizations in newspapers. However, they only acquire the force of law after gazette notifications, and that too after being passed/approved by competent governments/parliament/Hon'ble President (as per legal requirement). I suggest that you do not treat such proposals as final until the final gazette notifications of amendments, etc., are published. Often, Hon'ble ministers give interviews in various newspapers, and these interviews are published in a way that suggests the contents are final, when in reality, the position remains unchanged. For example, the amendment in the Maternity Benefit Act, 1961, has not yet been passed by Parliament, despite the Hon'ble Minister giving interviews on the subject multiple times.
Further, I believe that Income Tax provisions are entirely different from the ESI Act, 1948, and have no relation to each other. Income Tax provisions are extensive, spread out by various rules, and serve a different purpose. If an employee receives amounts for incentives and overtime, and their total taxable income falls within the taxable slab, I think the government is justified in charging income tax.
Thank you.
From India, Noida
Acknowledge(0)Amend(0)Looking for something specific? - Join & Be Part Of Our Community and get connected with the right people who can help. Our AI-powered platform provides real-time fact-checking, peer-reviewed insights, and a vast historical knowledge base to support your search.