Hello,
Please let me know what can be the salary structure after the new PF rule. What is the rebate for HRA? Do we have to put HRA as 40% of the basic and then subtract it from the gross salary for the PF calculation?
Thank you
From India, Udaipur
Please let me know what can be the salary structure after the new PF rule. What is the rebate for HRA? Do we have to put HRA as 40% of the basic and then subtract it from the gross salary for the PF calculation?
Thank you
From India, Udaipur
Dear Anamika, Keep HRA 40% of basic, rented employees may avail the tax benefit and you can exclude HRA from PF calculation.
From India, Mumbai
From India, Mumbai
That means your employees work only to pay rent. It is true that under the definition of wages, HRA is excluded. But it does not mean that you can pay 40% or 50% as HRA. It is okay if the HRA is not part of the salary as in the case of government servants and the employees of public sector banks and other undertakings. It is not the case of private companies where a total salary or total cost to company is initially fixed, and this amount is bifurcated into small components like Basic salary, HRA, Conveyance, etc., for no reason.
If you take a leave, you are paid according to your total salary or gross salary. If you take leave without pay, it is the gross salary and not the basic salary that is subjected to deduction. That means it is the gross salary that is agreed to be paid to an employee, and that is the PF qualifying salary.
In the case of PF, there is a ceiling of Rs. 15,000 on wages, and the employers who do such bifurcation should understand that it is a matter of only Rs. 1,800, and by contributing on the entire salary subject to Rs. 15,000, they will be incurring a very small addition to their cost. Also, remember that there are a number of employers who contribute their PF on amounts more than the ceiling of Rs. 15,000.
From India, Kannur
If you take a leave, you are paid according to your total salary or gross salary. If you take leave without pay, it is the gross salary and not the basic salary that is subjected to deduction. That means it is the gross salary that is agreed to be paid to an employee, and that is the PF qualifying salary.
In the case of PF, there is a ceiling of Rs. 15,000 on wages, and the employers who do such bifurcation should understand that it is a matter of only Rs. 1,800, and by contributing on the entire salary subject to Rs. 15,000, they will be incurring a very small addition to their cost. Also, remember that there are a number of employers who contribute their PF on amounts more than the ceiling of Rs. 15,000.
From India, Kannur
Dear Madhu Sir,
You mentioned that there is no reason for bifurcating the salary components. Could you please explain the following subjects for my further knowledge:
1. Why does income tax allow exemptions on different allowances like conveyance, HRA, and LTA?
2. How can we calculate tax without bifurcating allowances?
Thank you for your clarification.
Best regards,
[Your Name]
From India, Mumbai
You mentioned that there is no reason for bifurcating the salary components. Could you please explain the following subjects for my further knowledge:
1. Why does income tax allow exemptions on different allowances like conveyance, HRA, and LTA?
2. How can we calculate tax without bifurcating allowances?
Thank you for your clarification.
Best regards,
[Your Name]
From India, Mumbai
Dear All,
Greetings!!
There are certain changes that are proposed. Further, for PF calculation, Basic+DA+Special allowance will be considered (as per the Supreme Court's recent guideline). As far as HRA is concerned, it'll be accounted for as metro and non-metro.
Best regards
From India, Delhi
Greetings!!
There are certain changes that are proposed. Further, for PF calculation, Basic+DA+Special allowance will be considered (as per the Supreme Court's recent guideline). As far as HRA is concerned, it'll be accounted for as metro and non-metro.
Best regards
From India, Delhi
Dear Ravi,
Under the Income Tax Act, the same theory should be applied. Whatever we receive as remuneration is considered salary, and any additional payments are classified as allowances. In the event of a scrutiny, the Income Tax department will likely insist that everything paid as part of the employment contract should be included in the salary calculation.
Let me bring your attention to a prominent case, Wockhardt Hospital, Hyderabad Vs. Department of Income Tax. The hospital had hired doctors as Consultants, who were initially treated as such for tax purposes. However, the Income Tax department noticed that these doctors were following the hospital's general rules regarding timing, leave policies, reporting, and other protocols. Furthermore, there were restrictions on private practice. The department concluded that an employer-employee relationship existed, and the payments made, irrespective of the charges collected from patients, should be classified as salaries for tax deduction purposes. This case highlights that any remuneration paid according to the employment contract is considered salary.
I would like to emphasize that the next challenge may revolve around clarifying the treatment of House Rent Allowance (HRA) within the salary structure. In my view, HRA should be included as part of the salary for determining eligibility for Provident Fund (PF) and Gratuity, while separately paid HRA based on need should be excluded.
I have previously discussed this topic in another thread. Please review that post in conjunction with this one to avoid redundancy and save time and effort.
[Link: https://www.citehr.com/611309-epf-deduction-after-supreme-court-ruling-allowance.html#post2425693](https://www.citehr.com/611309-epf-deduction-after-supreme-court-ruling-allowance.html#post2425693)
From India, Kannur
Under the Income Tax Act, the same theory should be applied. Whatever we receive as remuneration is considered salary, and any additional payments are classified as allowances. In the event of a scrutiny, the Income Tax department will likely insist that everything paid as part of the employment contract should be included in the salary calculation.
Let me bring your attention to a prominent case, Wockhardt Hospital, Hyderabad Vs. Department of Income Tax. The hospital had hired doctors as Consultants, who were initially treated as such for tax purposes. However, the Income Tax department noticed that these doctors were following the hospital's general rules regarding timing, leave policies, reporting, and other protocols. Furthermore, there were restrictions on private practice. The department concluded that an employer-employee relationship existed, and the payments made, irrespective of the charges collected from patients, should be classified as salaries for tax deduction purposes. This case highlights that any remuneration paid according to the employment contract is considered salary.
I would like to emphasize that the next challenge may revolve around clarifying the treatment of House Rent Allowance (HRA) within the salary structure. In my view, HRA should be included as part of the salary for determining eligibility for Provident Fund (PF) and Gratuity, while separately paid HRA based on need should be excluded.
I have previously discussed this topic in another thread. Please review that post in conjunction with this one to avoid redundancy and save time and effort.
[Link: https://www.citehr.com/611309-epf-deduction-after-supreme-court-ruling-allowance.html#post2425693](https://www.citehr.com/611309-epf-deduction-after-supreme-court-ruling-allowance.html#post2425693)
From India, Kannur
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