Payroll Compliance Updates- India
A. Update

Employee State Insurance Corporation (ESIC) has, through notification no. G.S.R. 675(E), omitted Rule 51B of The Employees' State Insurance (Central) Rules, 1950, which states that in areas where the act is implemented for the first time, the contribution for the initial twenty-four months from such date of implementation for an employer is 3 percent and employee is 1 percent. Now, the contribution rates will be continue at the general contribution rate at 3.25 percent as employer contribution and 0.75 percent as employee contribution for all newly implemented areas as well.

B. Statutory Compliance Release Date: October 27, 2020
C. Effective Date: October 27, 2020
 
A. Update

In continuation to the announcement by the Ministry of Finance on October 12, 2020, the Government has decided to extend the benefit to other employees (i.e. non-Central Government employees) as well.

Accordingly, the payment of cash allowance, subject to maximum of Rs 36,000 per person as Deemed LTC fare per person (Round Trip) to non-Central Government employees, shall be allowed income tax exemption subject to fulfillment of the following conditions:

  • The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21
  • The employee spends a sum equals to three times of the value of the deemed LTC fare on purchase of goods / services which carry a GST rate of not less than 12% from GST registered vendors / service providers through digital mode during the period from the 12th of October, 2020 to 31st of March, 2021 (‘specified period’) and obtains a voucher indicating the GST number and the amount of GST paid.
  • An employee who spends less than three times of the deemed LTC fare on specified expenditure during the specified period shall not be entitled to receive full amount of deemed LTC fare and the related income-tax exemption and the amount of both shall be reduced proportionately
B. Statutory Compliance Release Date: October 29, 2020
C. Effective Date: October 12, 2020
 
A. Update

According to the announcement by the Ministry of Finance, dated October 12, 2020, employees can avail LTC Cash Voucher Scheme for the four-year block 2018-21. Since employees cannot avail LTC in the current block due to COVID-19, the Government has decided to give cash payment in lieu of one LTC during 2018-21. This scheme can be availed by the employees of Central Government employees.

Employees will be availing the following:

  • Full payment on Leave encashment,
  • Payment of fare in 3 flat-rate slabs depending on class of entitlement, and
  • Fare payment will be tax free.

Subjected to the following conditions:

  • An employee, opting for this scheme, will be required to buy goods / services worth 3 times the fare and 1 time the leave encashment before March 31, 2021.
  • The scheme also requires that money must be spent on goods attracting GST of 12% or more from a GST registered vendor through digital mode. The employee is required to produce GST invoice to avail the benefit.
B. Statutory Compliance Release Date: October 12, 2020
C. Effective Date: FY 2020-21
 
A. Update

Parliament has received the assent of the President on the Code on Social Security, 2020. The objective of the Code is to amend and consolidate the laws relating to social security with the goal to extend social security to all employees and workers, in the organized or unorganized or any other sectors.

The Code on Social Security amalgamates the existing nine statues viz., The Employees’ Compensation Act, 1923, The Employees’ State Insurance Act, 1948, The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, The Maternity Benefit Act, 1961, The Payment of Gratuity Act, 1972, The Unorganized Workers’ Social Security Act, 2008, The Cine Workers Welfare Fund Act, 1981, The Building and Other Construction Workers Cess Act, 1996, and The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959.

The following are the major impacts of the Code on the payroll processes:

  • Definition of ‘wages’ contains certain inclusions and exclusions and is different for different social security types.
  • Definition of ‘employees’ also includes workers employed through contractors.
  • Employee Provident Fund (EPF) scheme will apply on all establishments employing 20 or more employees and to certain notified establishments.
  • Under the Provident Fund Scheme of EPF, employers will have to make a contribution of 10% or 12%, as the case may be, and the employees will have to make a contribution similar to the employer or more if they wish to do so.
  • Under the Pension scheme of EPF, out of employers’ contribution to Provident Fund above, 8.33% of the wages for every employee shall be contributed.
  • Under the Insurance Scheme of EPF, maximum of 1% of wages towards Employee’s Deposit-Linked Insurance Fund (EDLI) and administration charges up to 0.25% of EDLI shall be deposited by the employer.
  • Employee State Insurance (ESI) scheme will apply to certain establishments with 10 or more employees and to all the establishments which carry out hazardous work, as may be notified by the central government.
  • ESI contributions shall be paid at such rates as may be prescribed by the Central Government.
  • Besides EPF and ESI, this Code also covers gratuity, maternity benefit, and social security for construction workers and workers in unorganized sector.
  • The Code also provides for filing of single return electronically, or otherwise, by an employer.
  • Aadhaar linked identification of employees is also covered.
B. Statutory Compliance Release Date: September 28, 2020
C. Effective Date: Multiple dates for different provisions to be notified by Central Government
 
A. Update

Finance Act 2020 introduced concessional rate of tax for individuals opting a new tax regime under section 115BAC of the Income Tax Act, 1961. Also, the memorandum to Budget 2020 provided that specific allowances under section 10(14) of the Income Tax Act, 1961 read with Rule 2BB of the Income Tax Rules, 1962 would still be allowed as exemption for the employees opting for new tax regime. These specific allowances under Rule 2BB are:

  • Any Allowance granted to meet the cost of travel on tour or on transfer;
  • Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
  • Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office; and
  • Transport Allowance granted to an employee with disability to meet expenditure for the purpose of commuting between place of residence and place of duty.

It was also specifically provided in the Memorandum that exemption in respect of free food and non- alcoholic beverage provided by an employer through paid voucher [Clause iii of sub-rule 7 of Rule 3] shall not apply to the employees exercising option of new tax regime.

Now, the Central Board of Direct Taxes through Notification No. 38/2020 has accordingly amended the Rule 2BB and Rule 3 to give effect to the above provisions of Memorandum. These rules may be called as the Income-tax (13th Amendment) Rules, 2020

B. Statutory Compliance Release Date: June 26, 2020
C. Effective Date: April 01, 2020
 
A. Update

Finance Minister announced additional relief measures to support Indian Economy’s fight against COVID-19. In order to provide more take home salary to employees and also to give relief to employers in payment of Provident Fund dues, statutory PF (EPF) contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months, i.e. June to August 2020.

Further to the above Press Release, a Notification has been released on May 18, 2020. As per this, the reduced rate of 10% of monthly pay (instead of 12% of monthly pay) applies for employer’s and employee’s EPF contribution in respect of wages payable for the months of May, June and July 2020.

The reduced rate for provident fund contributions will be applicable for International Workers also.

This notification is not applicable to:

  • Central Public Sector Enterprises, State Public Sector Enterprises and other establishments owned by or under the control of the Central Government or the State Government;
  • Establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) i.e. establishments with up to 100 employees with 90% or more of such employees earning monthly wages less than INR 15,000 – where both employer’s and employee’s share of Provident Fund contribution is payable by the Central Government.
B. Statutory Compliance Release Date: May 18, 2020
C. Effective Date: May 01, 2020
 
Source:
A. Update

Till now, ESI Scheme was notified in 566 Districts in 34 States and Union Territories, which include some fully notified while some partially notified districts. After Aatmanirbhar Bharat Abhiyaan Press Release-Part 2 , it has been provided that ESIC shall cover all districts and all establishments employing 10 or more employees in India. Extension of ESIC coverage to employees working in establishments with less than 10 employees shall be on voluntary basis.

B. Statutory Compliance Release Date: May 14, 2020
C. Effective Date: May 14, 2020
 
Source:
https://pib.gov.in/PressReleasePage.aspx?PRID=1623840
A. Update

Central Board of Direct Tax has released a Circular clarifying the option under section 115BAC to be considered for TDS from Salary u/s 192.

  • For a salaried individual, with no business income, employees will give intimation to the employer and basis that TDS will be deducted. However, this option will be given only once in a year.
  • For a salaried individual, with business income, employees will give intimation to the employer and basis that TDS will be deducted. However, this option will be given only once in a lifetime. Employer/admin needs to ensure that such option is not altered in the subsequent tax years.

Things to be noted here:

  • Where no intimation has been made by an employee, old regime shall be applicable by default.
  • No format for such intimation has been provided and hence, will be subject to a particular organization.
  • No timeline has been provided by when an employee can give such intimation.
  • An employee will continue to have the right to exercise such option at the time of filing return and it may be different from the one made in the Intimation to the employer.
B. Statutory Compliance Release Date: April 13, 2020
C. Effective Date: April 01, 2020
 
A. Update

To provide relief to the Covid-19 affected, a public charitable trust in the name of ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) has been set up. Donations to this fund will be exempted from the income tax under section 80G.

B. Statutory Compliance Release Date: March 28, 2020
C. Effective Date: April 01, 2019
 
A. Update

Following are the relevant amendment (from product’s perspective) brought by Union Budget, 2020:

1. Change in Perquisites

Presently, u/s 17(2)(vii), any contribution by the employer to an approved superannuation fund is considered as a perquisite to the extent it exceeds ₹ 1.50 Lakhs. Finance Bill, 2020 proposes to extend the coverage to the amount(s) of any contribution made by an employer:

  • in a recognized provident fund;
  • in the scheme referred to in sub-section (1) of section 80CCD; and
  • in an approved superannuation fund,

to the extent it exceeds ₹ 7.50 Lakhs in a tax year.

The above limit shall also include, any annual accretion, like interest or dividend, on the above amount.

2. Deduction u/s 80EEA extended to another year

It is proposed to amend section 80EEA so as to provide that the deduction in respect of interest paid on loan sanctioned by a financial institution for acquisition of a residential house property, shall be available if the loan has been sanctioned during the period 1 April 2019 to 31 March 2021, subject to the other conditions specified in the said section.

3. Simplified and New Income Tax Regime as an option to the old regime

There is no change proposed for tax rates applicable to a salaried individual.

However, a new simplified optional personal tax regime would be introduced, under which reduced income tax rates would apply to individuals who opt to forego certain deductions and exemptions.

The simplified optional personal tax regime is proposed to be inserted via section 115BAC for Individuals to pay tax as per the below rates, subject to certain conditions:

Total Income Tax Rate + Amount
Upto ₹ 2,50,000 NIL NIL
From ₹ 2,50,001 to ₹ 5,00,000 5% NIL
From ₹ 5,00,001 to ₹ 7,50,000 10% ₹ 12,500
From ₹ 7,50,001 to ₹ 10,00,000 15% ₹ 37,500
From ₹ 10,00,001 to ₹ 12,50,000 20% ₹ 75,000
From ₹ 12,50,001 to ₹ 15,00,000 25% ₹ 1,25,000
Above ₹ 15,00,000 30% ₹ 1,87,500

Conditions to opt for above rates are that the following exemptions and deductions shall not be available:

  • Leave travel concession as contained in clause (5) of section 10;
  • House rent allowance as contained in clause (13A) of section 10;
  • Exemptions under clause (14) of Section 10 provided for special allowances granted to meet business related expenses and other prescribed allowances (other than those, as may be prescribed for this purpose, as provided below);
  • Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
  • Interest under section 24 in respect of self-occupied or vacant property (Loss under the head “Income from house property” for rented house shall not be allowed to be set off under any “Salary” head and would be allowed to be carried forward as per extant law);
  • Any deduction under chapter VI-A (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, etc.). However, deduction under section 80CCD(2) (employer contribution on account of employee in notified pension scheme) can be claimed.
  • without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

It is also proposed to carry out amendment of the Income-tax Rules, 1962 (the Rules) and subsequently, to allow only following allowances notified under section 10(14) of the Act to the Individual exercising option under the proposed section:

  • Transport Allowance granted to an employee with disability to meet expenditure for the purpose of commuting between place of residence and place of duty;
  • Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
  • Any Allowance granted to meet the cost of travel on tour or on transfer;
  • Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

It is also proposed to amend Rule 3 of the Income Tax Rules subsequently, to remove exemption in respect of free food and beverage through vouchers provided to the employee, being the person exercising option under the proposed section, by the employer.

This option can be exercised every year in the prescribed manner (to be prescribed by Rules) by a salaried individual, with no business income, along with the return of income for a previous year relevant to the assessment year and shall be valid for that previous year and all subsequent years.

Individuals with business income can exercise this option before the due date of filing the return. Once this option is exercised, they will have to continue with the new regime for that year and all subsequent years.

The Tax rates for TDS from Salaries are specified in Part III of the First Schedule to the Bill and the same Part also covers the newly proposed Section 115BAC. This implies that such option of an individual will also be considered for the purpose of tax deduction from the salaries. The amount of income-tax computed in accordance with the above provisions, including the income tax computed under section 115BAC, shall be increased by a surcharge.

Income Tax Department has introduced a Tax Calculator for Resident Individuals for the financial year 2020- 21 to enable a taxpayer identify which regime is more beneficial to him/her and accordingly, decide which one to opt for.

However, the above proposals are yet to obtain Presidential assent.

B. Statutory Compliance Release Date: February 01, 2020
C. Effective Date: April 01, 2020
 
Source:

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