As we welcome the New Year 2020, we must get ready to say good bye to the Financial Year 19-20. Every organization must prepare itself to handle a basket of employee related statutory compliance’s. Let’s explore the year end payroll compliance’s.
The Government has entrusted the employers with handling duties which are critical to employee’s finances. Accordingly, every employer has to:
- Deduct taxes from employers
- Contribute towards statutory components viz, ESI,PF,Bonus,Gratuity
- Remit taxes & other dues to the Government
- File returns with various Government departments
Deduction of Taxes
The Income Tax Act, 1961 mandates that it is the employer’s responsibility to deduct the correct amount of taxes from the salary of an employee. In order to arrive at the tax amount the employer must collect proofs of investments from the employees. It is these proofs which ultimately result in a Form 16, which is used by employees to file their tax returns. Here is what an employer must do:
- Communicate to the employees about the need for investment proof
- Clearly list out the documents which is called as “Proof”
- If possible, hold multiple rounds of proof collection
- Re-calculate the TDS based on proof submitted
- Deduct the TDS from employees salary
- Remit the TDS to the Government within due dates
In addition to the above, every employer must file E-TDS returns for the January-March quarter within the due dates. The credit of tax deducted from the salary is transmitted to an employee only when the E-TDS returns are filed. The TDS deducted by the employer appears in the Form 26AS of every employee from whom tax has been deducted.
Further, it is important to note that a Form 16/Form 12BA can be generated only when the employer files his E-TDS returns. The Government requires that the Form 16’s be provided to employees within certain due dates. The Form 16, so issued by the employer, contains all the information required by an employee to file his income tax returns.
What happens when there is salary from more than one employer?
Section 192(2) of the Income Tax Act deals with situations where an individual changes employers during the year. The Law requires that the employee provide to the present employer details of salary income received from the former employer and TDS done thereon. The present employer will be required to deduct taxes on aggregate amount of salary (including salary from the previous employer)
If the employee fails to provide these details, it will be likely that he will have to pay interest on the taxes owed at the time of filing the return.
Contribution to Provident Fund & Employee State Insurance
The Provident Fund rules require the employer to deduct 12% from the salary of every employee as “Employee’s Contribution to Provident Fund”. The employer contributes 12% from his side as “Employer’s Contribution to Provident Fund”.
The employee’s contribution to provident fund is allowed as deduction from income tax under Section 80C. It is imperative that the employer includes the PF contributions in the Form 16 of the employee.
In order to ensure PF gets computed correctly and remitted on time, the entire payroll process has to be automated. We recommend Zoho Payroll for effortless payroll processing.
Employee State Insurance scheme stipulates that employer & employee contribute 4.75% and 1.75% of salary to the Insurance scheme. This scheme is applicable to employees who have a salary of less than Rs 21,000. Further, employees are not eligible for an income tax deduction for contribution to this scheme.
Remit taxes & Filing returns with the Government
Every employer has the onerous responsibility of depositing the amounts deducted from the employees with the Government. These returns have to be filed within specified timelines:
Deposit of TDS by 7th of every month
Deposit of PF by 15th of every month
Employee State Insurance
Deposit of ESI by 15th of every month
Filing of ETDS by 31st of every quarter
Non deposit of statutory deduction will lead to penalties and even criminal prosecutions. It can have a worse impact on the business’s reputation, because compliance violations tend to cause customers to lose faith in the business.
Needless to say that being compliant with regulations is a best bet for any business. As more employees get added to the business, more automated compliance management must get. Here is where Integra Books can help. We have a unique solution where expert human resources use the best technology to manage your business. Get in touch today.
PS: As a related piece we recommend that you read our previous blog on payroll here