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HRA Exemption Limit – Changes

November 19, 2013 Comments off

Source : – Livemint

If you plan to claim tax exemption under house rent allowance (HRA) for the current financial year, remember that you will have to furnish the Permanent Account Number (PAN) of your landlord if your annual rent exceeds Rs.1 lakh, or Rs.8,333 per month. Earlier you had to furnish PAN of your landlord only if annual rent exceeded Rs.1.80 lakh, or Rs.15,000 per month.

What’s the change?
According to a circular (http://tinyurl.com/luyxazk) issued by the Central Board of Direct Taxes (CBDT) on 10 October 2013, if annual rent paid by an employee exceeds Rs.1 lakh per annum, it is mandatory for the employee to report PAN of the landlord to the employer. The new circular replaces the earlier circular wherein for financial year 2011-12 onwards, CBDT had stated that while computing the tax liability employees who are paying house rent of more than Rs.15,000 per month and are claiming exemption under HRA are required to furnish a copy of the PAN card of the landlord.
What is the exemption?
Under section 10 (13A) of the Income-tax Act, if you are a salaried individual and get HRA from your employer, you are entitled for tax exemption. In order to claim tax exemption, you need to produce house rent receipts. For administrative ease, salaried employees who get house rent allowance up to Rs.3,000 per month don’t have to produce rent receipt.
This concession is only for the purpose of tax exemption at source. However, the assessing officer can ask for a receipt, if required, as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
For any rent above Rs.3,000 per month, you have to produce a rent receipt to claim tax exemption. The actual HRA exemption that one can avail under section 10(13A) would be the minimum of the following: the actual amount of HRA received, or 50% of the salary for individuals residing in metros (Delhi, Mumbai, Chennai or Kolkata) and 40% of the salary for individuals living in non-metros, or the rent paid minus 10% of the total salary.
What should you do if your landlord doesn’t have PAN?
If your landlord doesn’t have a PAN, you have to make a declaration. According to the CBDT circular, in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee

House Rent Allowance (HRA) – Common Issues

February 19, 2013 9 comments

House rent allowance is one of the key components of wages paid to an employee. The object of payment of HRA is to enable an employee to meet the expenses incurred by him for hiring an accommodation at his place of work. Some frequently asked doubts about HRA are addressed below

1) Is it compulsory to pay HRA as part of wages to an employee?

No. It is not compulsory for an employer to pay certain sum as HRA as part of the wages unless there is a statute (law) in that state making payment of HRA at certain minimum rate as compulsory.

2) Is there any statute making payment of HRA as compulsory?

Certain states like Maharashtra have enacted law namely the Maharashtra Workmen’s Minimum House Rent Allowance Act 1983 where by an employer covered under the Act, is required to provide HRA at minimum rate to workmen. Therefore one needs to check with regard to one’s state about the existence of any such law.

3) Is there any specified formula in fixing the quantum of HRA in the industry?

Except where there is a statutory provision in states like Maharashtra, there is no prescribed formula for fixing the quantum of HRA.

4)  Whether HRA can be uniform for all places?

No.HRA cannot be uniform for all places in order to be realistic. For example, a company fixes HRA at Rs.1500/- for an employee working in a small city. However the same amount cannot be said to be realistic for an employee working at a lage city, where he is compelled to hire accommodation at far higher rates.

5) In the absence of any fixed formula or rule, what are the factors that are relevant to fix the quantum of HRA?

The following are the factors that can be considered as relevant.

i) HRA shall be linked to the place of work/posting of an employee but not to the place of the residence of his family. For example an employee is working at Nasik but his family is staying at Mumbai for education of his children. He is eligible for HRA at the rates fixed for Nasik town but not at the rate fixed for Mumbai.

ii) It shall bear reasonable relationship to the rental values prevailing at his place of work.

iii) It shall be commensurate with the status, roles and levels of the employees. For example the HRA drawn by a junior officer and a Senior Manger cannot be the same. The company needs to have a pragmatic formula, having regard to the size of accommodation which it considers as adequate for each class of employee.

6) What are the sources that can be looked for guidance in deciding the quantum of HRA?

On can look for the following sources
i) The statute, if any prevailing in any state providing for payment of HRA
ii) The HRA paid across  the industry or the companies of similar nature and size, located in the same region in which the company in question is located, can also be adopted as a norm.

7) Is HRA and house rent reimbursement the same?

NO. HRA is paid as part of salary every month as any other regular allowance like dearness allowance. Whereas in the scheme of house rent reimbursement, no HRA is paid and an employee is required to produce rent receipt or some evidence, prescribed by the company for having incurred the expenses towards the rent of his accommodation upon which the company reimburses him the said amount.

8) Is HRA also payable as part of wages when employee is also claiming reimbursement of house rent?

No. The employee is either eligible for HRA or for house rent reimbursement.

9) Is HRA also to be deducted when an employee is on leave without pay?

Yes. When HRA is paid as part of salary, it is to be deducted when an employee is on leave without pay.

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This is a Guest post by Sai kumar, an HR professional with three decades of experience in the field of labour laws and industrial relations in a public sector as well as in a reputed labour law firms. 

Sai Kumar has been  involved  extensively in research on labour law issues and case-law  on subjects such as the Industrial Disputes Act, the Standing Orders Act, the Factories Act, the Contract Labour Act, the P.F Act, the ESI Act  and the Gratuity Act etc.

The opinions expressed in the various blog posts on this site are those of the respective authors and are not necessarily endorsed by Talentmoon Human Capital Solutions LLP ( ” Talentmoon”)  or its Partners.  The guest posts on the various Labour laws and acts are only intended to present these laws in simplified language and they are not to be construed as legal interpretations or legal advice. The replies to various comments & queries on these blogs are based on the understanding of these Acts and laws, by the guest Author and the reader is advised to use his discretion and take appropriate legal opinion before acting on these posts & comments.

Talentmoon is not a law firm and none of its partners are legal practioners

Key Amendments to Workmen’s Compensation Act 1923

July 25, 2012 1 comment

In continuing with our effort to present the various labour laws in a layman’s language, a brief update is provided on Workmen’s Compensation act 1923.

S.NO Section Pre-amended position Post-amended position
1 Title Workmen’s Compensation Act 1923 Tile of the Act amended to “Employees Compensation Act 1923”.
2 Words and expressions Refer to the words ‘workman’ or ‘workmen’ in the Act They are substituted by the words ‘employee’ or ‘employees’ wherever they occur.
3 Schedule II Clerks were not covered for compensation under the Act. Clerks are now covered for compensation. Please refer to  schedule-II for specified employments.
4 Sec.4 (a) The minimum ceiling limit of compensation for death was Rs.80000/- Now it has been revised to Rs1,20,000/-
5 Sec.4(b) The minimum ceiling limit of compensation for permanent total disablement was Rs.90000/- Now it has been revised to Rs1,40,000/-
6 Sub-Sec.2A of sec.4 Non-existent This sub-section was added after sub-section(2).This entitles an employee to reimbursement of actual medical expenditure incurred by him for injuries caused during the course of employment.
7 Explanation II to clauses(a)&(b) of Sec.4 of Sec.4 Explanantion –II prescribes the maximum wage limit at Rs.4000/- p.m for the purpose of computing compensation for death and permanent disablement The Explanation was omitted and a new sub-section (IB) has been added after Sub-section IA of sec.4 whereby the maximum wage limit has been revised to Rs.8000/-p.m
8 Sub-sec.(4) of Sec.4 The existing limit of funeral expenses is Rs.2500/- It has been revised to Rs.Rs.5000/-
9 Sec.25A Non-existent A new section has been added which fixes 3 months time limit for disposal of claims from the date of reference.

 

This is a Guest post by Sai kumar, an HR professional with three decades of experience in the field of labour laws and industrial relations in a public sector as well as in a reputed labour law firms. 

Sai Kumar has been  involved  extensively in research on labour law issues and case-law  on subjects such as the Industrial Disputes Act, the Standing Orders Act, the Factories Act, the Contract Labour Act, the P.F Act, the ESI Act  and the Gratuity Act etc and currently advises Talentmoon and its clients.

Key Amendments in Industrial Disputes Act 1947

July 17, 2012 1 comment

Continuing with simple presentation on amendment sin various labor law related acts, this blog presents the key amendments in industrial disputes act in a tabular form

 

S.NO Section Pre-amended position Post-amended position
1 Sec.2(a)(i) The scope of appropriate Government so far as central Government is concerned was restricted to only those enumerated in sub-clause(i) of clause(a) of Sec. 2 Now  this scope has been expanded to include companies —

i)In which not less than 51% of the paid up share capital is held by Central Government or any corporation(excluding those mentioned in sub-clause(i) set-up by Central law or held by central public sector undertakings or by subsidiaries of principal undertakings owned by or controlled by the Central Government.

 

ii) Another important amendment made to clause (a) of Sec.2 is to define appropriate government with regard to disputes between contractor and the contract labour. It now depends up on the question whether the industrial establishment which employs the contract  labour in which such dispute arises, falls under the control of Central Government or State Government. If it falls under the control of Central Govt., central govt. will be the appropriate government otherwise, the State Govt.

2 Sec.2(s) Supervisors drawing wages not exceeding Rs.1600/-p.m are coming within the definition of workmen. Now, Supervisors drawing wages not exceeding Rs.10000/-p.m are coming within the definition of workmen.

 

3 Sec.2A Under present provision, an individual dispute raised a workman who is retrenched or dismissed can be adjudicated by the Labour Court/Industrial Tribunal only when it is referred by the Government on recipt of report from Conciliation Officer. After amendment, a new sub-sections (2)&(3) have been added which enable the individual workman who is retrenched or dismissed and who raises the dispute before conciliation officer, can now directly make an application to the Labour Court/industrial Tribunal for adjudication of his dispute after a lapse of 45 days from the date of making an application to the conciliation officer.

(3) The application referred to in sub-section (2) shall be made to the Labour Court or Tribunal before the expiry of three years from the date of discharge, dismissal, retrenchment or otherwise termination of service as specified in sub-section (1).”.

 

4 Chapter IIB-Sec.9(C) The Present Sec. 9(C) does not precisely give the constitution of the grievance redressal mechanism and the procedure. This Section has been substituted by new Sec.9(C). The new Section 9(C) provides –

i)Composition of the Grievance Redressal Committee.

ii)Fixes a thirty day time limit for redressal of the grievance.

 

iii)Provides for appeal to the employer by the workman aggrieved by the decision of the committee.

5 Sec.11 The present section does not refer to the manner of execution of awards made by Labour Court/ Industrial Tribunal. New subsections (9) &(10) have been added to Section 11 where by the Labour Court or Industrial Tribunal shall transmit any award or order or settlement arrived before it to a civil court which will execute the same as if it were a decree passed by it.

This is a Guest post by Sai kumar, an HR professional with three decades of experience in the field of labour laws and industrial relations in a public sector as well as in a reputed labour law firms. 

Sai Kumar has been  involved  extensively in research on labour law issues and case-law  on subjects such as the Industrial Disputes Act, the Standing Orders Act, the Factories Act, the Contract Labour Act, the P.F Act, the ESI Act  and the Gratuity Act etc and currently advises Talentmoon and its clients.

Recent Amendments in PF & MP Act, 1952

June 27, 2012 2 comments

As part of the third article in our 3 part series, we present the recent amendments in the PF & MP Act 1952 in a simple tabular form.

We hope this series will be helpful to all our readers.

Key amendments of P.F & M.P Act 1952 along with schemes there under


0S.No Section/Para Pre-amended position Post -amended position
1 Para 22 of EDLI A  person entitled to receive P.F accumulations of  a deceased member of  a fund or Provident fund exempted under Sec.17 of the P.F Act, is also entitled to receive an amount which is equal to the average of  the balances in the P.F  account of the member during the preceding 12 months or during the period of membership  of the deceased employee whichever is less. If such average balance exceeds Rs.35000/, he is entitled to receive Rs35000/+ 25% of the amount in excess of RS. 35000/- subject to the maximum of Rs 65000/- Now  after the amendment, the  ceiling limits of the average balance of  Rs.35000/- has been revised up to Rs.50000/- and in case the average balance exceeds Rs 50000/– the person is entitled to receive  an additional 40% of the amount in excess of Rs 50000/- instead of the previous 25% subject to the maximum of Rs.100000/-(Rs. one lakh)
 2 Para 22 of EDLI scheme Non existent The new Sub-Para (3) has been inserted after sub-Para (2) of Para 22. This Para stipulates the formula of paying an additional sum under EDLI scheme, in addition to P.F accumulations, to a person entitled to receive the P.F accumulations of the deceased employee who is a member of the Provident Fund exempted under Sec.17 of the P.F Act , if such deceased employee was in employment for a continuous period of twelve months preceding  the month in which he died.

Formula :

Average monthly wages drawn during the preceding 12 months( subject to the maximum of Rs. 6500)/- X 20  or the amount of benefit calculated u/ Sub-Para(1) of Para 22 whichever is higher.

It means, if an employee covered under EDLI Scheme dies and was in employment for a continuous period of 12 months preceding the month in which he died, the benefit payable under EDLI scheme has to be calculated as per the formula under Sub-Para(1) of Para  22 and also as per formula under Para (3) and whichever benefit is higher ,has to be paid to the person entitled to receive it .

Similarly an explanation has also been added  to stipulate a formula  in case of death of part time employees serving in more than one factory or establishment for a continuous period of 12 months.

3 Para 60 of  P.F. Scheme 1952 Non existent Sub-Para (6) was added to Para (60). As per this interest shall not be credited to the account t of the employee from the date on which it has become inoperative.

An account becomes inoperative under Para.72(6), if no claim has been made within three years from the date it becomes payable

4 Para 72(6) of  P.F. Scheme 1952 The  existing sub-Para (6) permits transfer  of certain  sums , incapable of being paid to the employee/legal  heirs  either for want of address or for want of receiving a claim for the  same, to an inoperative account if no claim has been preferred within 3 years of from the date on which the amount becomes payable. After the amendment, the period of thirty six months (but not three years) needs to be computed from the date of preferring an application for withdrawal under Para s (69) or (70).

 

5 Para (20) of Pension scheme 1995 As per Para(1)&(2) of Para (20) the employer has to submit  a consolidated return of the employees entitled to become members and a return of employees leaving service in physical form to the commissioner . Now Para (5) has been added after Para(4) whereby  such returns shall be submitted in electronic form in the format prescribed by the Commissioner.
6 Para 10 of EDLI scheme As per the existing sub- Paras (1)(1-A) &(1-B), the returns specified in them shall be sent to the Commissioner  in physical form. A new Sub-Para(3) has been added requiring the returns specified in Sub-Paras (1)(1-A) &(1-B)  to be submitted in electronic form

 

Recent Amendments to Payment of Gratuity Act, 1972

June 24, 2012 139 comments

Following up on our post last week about the Recent amendments in the ESI Act, this week we give a snapshot of the latest amendments in the Payment of Gratuity act 1972.

For a more detailed and simplified post on the Payment of Gratuity Act, click here

Key amendments of Payment of Gratuity Act 1972

 

S.NO Section Pre-amended position Post – amended position
1 4(3) The maximum amount of gratuity payable is Rs.3,50,000/ Now the maximum amount of gratuity payable is Rs.10,00,000/-
2 Sec.2(e) The definition of employee covers only those performing manual, semiskilled skilled, unskilled, supervisory technical or clerical or managerial or administrative work. Thus a person who is not performing any of the above said categories of work like a teacher is not covered as an employee. After the amendment, the definition has been broad based as to include any person, employed to do any kind of work. Thus the definition includes a teacher as an employee under the Act.

 

Note : For establishments in the state of Maharashtra :

1) Rule 9 of Maharashtra Gratuity Rules has been amended where by the gratuity payable to an employee/nominee/legal heir, can be paid by demand Draft or account payee cheque.

Gratuity Simplified

April 16, 2012 16 comments

This is a Guest post by Sai kumar, an HR professional with three decades of experience in the field of labour laws and industrial relations in a public sector as well as in a reputed labour law firms. 

Prior to enactment of the Payment of Gratuity Act 1972, gratuity was considered as a gift or bounty given by the employer to express his appreciation for the services of an employee at the time of leaving the service. Since the enactment of the Act, gratuity is being increasingly looked up on as the right  of the employee to his property lying in the hands of the employer to be claimed in future. However the Act, while imposing obligations on the employer, made it also clear that gratuity is subject to good conduct. Therefore it is necessary to know the basic frame work of the applicability and eligibility under the Act.

1. What establishments are covered by the Act?

The Act covers the following establishments ;

I)Factories employing ten or more workers if they are run with power or twenty or more workers without power.

2)Mines, oil fields and Plantations which are so defined under the relevant Acts.

3) Shops and commercial establishments employing ten or more persons on any day during the preceding twelve months.

However the Central Government can extend the application of the Act to any other establishment.

2. Who are excluded?

The central Government and State Government establishments are excluded from the Act.

3. Since there is always employee turn- over,  what happens if the number  of employees fall below ten at any time?

As per Sec.1(3-A), once the Act applies to an establishment, it continues to apply to it even after the fall in the number below ten employees.

4. Who are covered?

Sec.2(e) defines an “employee”. All employees whether they are workmen performing manual, skilled or semiskilled, unskilled, technical supervisory or clerical work or those performing managerial or administrative functions are covered. After broad basing the definition of employee  by amending the section recently, even teachers are also covered.

5. Is there any wage limit for coverage of employees?

No. The Act does not prescribe any wage limit unlike the P.F Act or ESI Act.

6. When an employee becomes eligible to claim gratuity?

An employee becomes eligible to claim gratuity on any of the following grounds after completing five years of continuous service.

I)       On attaining the age of superannuation or retirement

II)    On resignation

III)  On death even before completion of five years and

IV) On acquiring disability due to accident or disease even before completion of five years.

7. Whether an employee who resigns or leaves  the job  or due to closure before completing fifth year, can also claim gratuity?

Yes. An employee who could not complete the fifth year for any of the reasons but completes four years and 240 days (8months) is considered under law as having completed fifth year also and becomes eligible for gratuity.

8. How to compute gratuity?

Gratuity is to be computed at the rate of fifteen days wages last drawn by an employee for each completed year of service and service in excess of six months to be treated as one year as per the formula given below.

Monthly wages last drawn/26  x 15 x  no. of years of service

 9. What is the maximum limit for payment of gratuity?

It is now Rs.10,00,000/-

10. Can gratuity be attached?

No . It cannot be attached

11. What precautions to be taken  in making nomination?

i)       The employee shall submit nomination in the proper prescribed form within 30 days of completion of one year of service..

ii)     If employee has a family at the time of making nomination, they shall nominate only a member of their family not any one else since such nomination becomes invalid.

iii)   If they have no family at the time of making nomination, they can name any person as their nominee but on acquiring family, they shall modify or change the nomination in favour of his family member.

iv)  they shall duly sign the nomination form.

 12. Gratuity is subject to good conduct

Gratuity does not become payable automatically but is subject to good conduct. This fact is espoused by section 4(6) of the Act.

A)   The employer can forfeit gratuity either fully or partially in the following cases irrespective whether there is any financial loss or damage caused to the employer or not :

i)       if the employee indulges in disorderly or riotous behavior

ii)    if the employee is guilty of moral turpitude.

B)    The employer can forfeit gratuity to the extent of financial loss, if it is caused by  ;

i)        an omission of the employee or

ii)       negligence of  the employee

provided the employee is found guilty of the same in either of the above cases in a domestic enquiry

 13. Important obligations of the employer under the Act

a) With regard to insurance and registration

The employer has to obtain insurance cover for the gratuity that becomes payable and register his establishment with the Controlling Authority.

b) with regard to payment

i) As soon as the gratuity becomes payable, employer shall calculate the amount and  keep it ready

ii) On receipt of application of the employee , they shall inform the employee in the prescribed form whether or not gratuity is payable to him

iii) If gratuity is payable to an employee, the employer shall pay it within 30 days from the date it becomes payable.

c) with regard to display  on notice board

i) Employer shall display the name of the officer with designation, in bold letters in English or in the language understood by majority of employees at a prominent place, who can receive notices under the Act and rules on behalf of the employer.

ii) The employer has to display an abstract of the Act and Rules in the prescribed form in English or in the language understood by majority of employees at a prominent place.

d)  with regard to nomination

Employer shall obtain nomination form from an employee who completes one year of service  or any change thereof in the form prescribed under the rules

14. Important obligation of the employees

 i)       The employee shall make an application in the prescribed form as soon as he leaves the service so as to enable the employer to settle his claim at the earliest.

ii)     He shall submit the nomination form in the prescribed form on completion of one year or intimate any change in it also in the prescribed form.

iii)   He shall maintain good conduct during the tenure of his service to be eligible for gratuity.

15. Remedy against non – payment or short payment of gratuity

An employee aggrieved by either non-payment or short payment of gratuity can file an application before the Controlling Authority notified under the Act and thereafter, if any party is aggrieved by the decision of the  Controlling Authority, can make an appeal to the appellate authority.

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Sai Kumar has been  involved  extensively in research on labour law issues and case-law  on subjects such as the Industrial Disputes Act, the Standing Orders Act, the Factories Act, the Contract Labour Act, the P.F Act, the ESI Act  and the Gratuity Act etc

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