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
71. 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
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?
1. Dear Mr. Vidyesh Kul, I think, the information you provided such as "2. The option is provided to employees to continue in ESIC even after his/her wages cross Rs.21,000/-." appears to be not correct. I hope, you will place / upload some gazette notification etc. vide which an option is allowed to employees to continue in coverage of ESI even after his wages and eligibility exceeds to such statutory limit of wages for information of members and seniors in this forum.
2. I am also doubtful whether an employee who is getting wages of Rs. 21000/- per month throughout a financial year and have savings in the form of deductions relating to EPF Contributions / ESI Contributions and other expenses like Transport Allowance / HRA etc. will be required to pay any income tax. Hope, you will let the seniors and experts in this forum to know the basis of your calculations and suggestions.
3. Further, I think, you could have sent your suggestions to the appropriate Govt i.e. Ministry of Labour & Employment (Central Govt.) in response to their draft intention notification dated 6/10/2016 (before final notification regarding enhancement of wage ceiling was issued by the said Govt.) when the views and objections from general public etc. were called for by said government.
From India, Noida
2. I am also doubtful whether an employee who is getting wages of Rs. 21000/- per month throughout a financial year and have savings in the form of deductions relating to EPF Contributions / ESI Contributions and other expenses like Transport Allowance / HRA etc. will be required to pay any income tax. Hope, you will let the seniors and experts in this forum to know the basis of your calculations and suggestions.
3. Further, I think, you could have sent your suggestions to the appropriate Govt i.e. Ministry of Labour & Employment (Central Govt.) in response to their draft intention notification dated 6/10/2016 (before final notification regarding enhancement of wage ceiling was issued by the said Govt.) when the views and objections from general public etc. were called for by said government.
From India, Noida
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
From India, Madras
Dear Harsh Kumar Mehta Sir,
Thanks for your reply.
1. I admit, I could not locate the Gazette notification on continuation of membership after crossing threshold limit.
2. On Income Tax: Though employees ESIC Wages is 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, this is not a hypothetical or an academic case, employee is covered under ESIC and paying Income Tax.
Secondly, ESIC limit is increasing periodically, one cannot keep hoping, due rules applicable to other components will keep employees out of Taxable limits.
Also, ESIC is a mandatory statutory deduction should have same treatment in Income Tax, like for Provident Fund, Professional Tax.
3. I did submit my suggestion during the period of suggestions to the concern authority.
Also, writing to Employees' representative in ESIC board.
From India, Mumbai
Thanks for your reply.
1. I admit, I could not locate the Gazette notification on continuation of membership after crossing threshold limit.
2. On Income Tax: Though employees ESIC Wages is 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, this is not a hypothetical or an academic case, employee is covered under ESIC and paying Income Tax.
Secondly, ESIC limit is increasing periodically, one cannot keep hoping, due rules applicable to other components will keep employees out of Taxable limits.
Also, ESIC is a mandatory statutory deduction should have same treatment in Income Tax, like for Provident Fund, Professional Tax.
3. I did submit my suggestion during the period of suggestions to the concern authority.
Also, writing to Employees' representative in ESIC board.
From India, Mumbai
a very simple logic 21000x12 =252000
a simple consideration of HRA 20% of gross or 25% of basic = 21000*20%=4200 x12= 50400
say the member pays EPF on 15000, so 15000 x 12% =1800x12 = 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 salary,
a simple consideration of HRA 20% of gross or 25% of basic = 21000*20%=4200 x12= 50400
say the member pays EPF on 15000, so 15000 x 12% =1800x12 = 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 salary,
1. Dear Mr. Kul, thanks for your reply. I may submit that many times the proposals regarding amendments etc. are published by various departments/govt. organisations in newspapers , but the same acquires the force of law only after gazette notifications and that too after being passed/approved by competent governments/parliament/Hon'ble President (as per legal requirement). I may suggest you to please not treat such proposals as final till such final gazette notifications of amendments etc. are published. Many times Hon'ble ministers give their interviews in various newspapers and such interviews are published in such a way as if the contents are final, but in actual the position remains as it was earlier. For example the amendment in the Maternity Benefit Act, 1961 has not so far been passed by Parliament even though Hon'ble Minister may have given his interview on the subject many times.
2. Further I think, Income Tax provisions are totally different than ESI Act, 1948 and has no relation with each other. Income Tax provisions are very lengthy and also spread over by various rules and has a separate purpose. If an employee has received amounts of Incentive and overtimes and his total taxable income falls within ambit of taxable slab, I think, govt. is justified in charging income tax.
From India, Noida
2. Further I think, Income Tax provisions are totally different than ESI Act, 1948 and has no relation with each other. Income Tax provisions are very lengthy and also spread over by various rules and has a separate purpose. If an employee has received amounts of Incentive and overtimes and his total taxable income falls within ambit of taxable slab, I think, govt. is justified in charging income tax.
From India, Noida
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