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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.

Provident Fund- common issues faced by employees

April 8, 2012 1 comment

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. 

The object of the provident fund scheme is to secure the future of an employee after his retirement. Therefore employees are willing to contribute to the provident fund scheme so long as they are in employment. This is not to speak of other benefits in the form of income tax relief on contributions as well as on the lump sum amount of provident fund which an employee gets at the time of retirement.

Apart from many issues associated with job change such as relieving, service certificates, notice periods and bonds, that need to be sorted out by the employees at the time of leaving a job, another dilemma that nags their minds is how to protect their provident fund and pension fund which they cherish  to retain till the end of their service.

Common questions that are associated with changing a job

The following questions are commonly asked by people looking for a change in employment

  1. Whether they have to withdraw their PF amount
  2. Whether they can transfer  the PF amount from the PF account with the previous employer to that of the new employer
  3. Whether they are required to put in any minimum service for such withdrawal?
  4. What about their pension amount?

This post attempts to clarify these queries within the frame-work of the provisions of the P F Act 1952 and the P.F Scheme 1952 and the Employees Pension Scheme 1995, framed there under.

What are the relevant provisions of the Employees Provident Fund Scheme 1952 and the Employees Pension Scheme 1995

Sub-para (2) of Para (69) of the Employees Provident Fund Scheme 1952 states that an employee resigning or leaving an establishment covered under P.F Act can withdraw P.F amount standing to his credit if he does not join any other establishment which is also covered under the P.F within two months from the date of his resignation or exit from the previous covered establishment. It implies that if he joins a new establishment to which the P.F Act applies within two months from the date  of resignation or exit from the previous establishment, he cannot withdraw.

At this juncture, Para 57 of the Employees Provident Fund Scheme 1952 comes into picture. It permits an employee to transfer his P.F from his previous employer to the new employer whether located within the same region or in different regions, if one of them is a covered establishment.

However where the employee, after exhausting the waiting period of two months, joins an establishment that is  covered or exempted from the P.F Act, he can either withdraw his provident fund  or pension fund( if he has not put in ten years of service) or alternatively transfer his provident fund.

As regards the pension fund of the employee at the time of leaving an establishment that is covered by the P.F Act, an employee is eligible for drawing pension at the earliest under Para 12(8) of the Pension Scheme 1995 if he has rendered eligible service of  ten years or more and has attained the age of 50 years. Alternatively he can also obtain Scheme Certificate  from the Commissioner of provident Fund, if he subsequently joins a factory or establishment covered by the Pension Scheme 1995.  The Scheme Certificate shows the details of pensionable service and pensionable salary.

If he has not put in the minimum service of ten years at the time of leaving the establishment, he can withdraw the pension contribution as per the formula for calculation specified under Table –D appended to the Scheme in terms of Para 14 of the Pension scheme 1995.

Therefore, the aforesaid criteria of waiting period of two months, the service  put in by an employee and the age of the employee at the time of resigning from a covered establishment are to be borne in mind to explore the options available and the procedure to be followed for dealing with various situations  concerning the Provident fund and pension fund. To avoid being too legalistic in explaining the options and to simplify the understanding of the various situations that are likely to arise with regard to provident fund and pension fund at the time of leaving the service of an employee, a ready reckoner table  is provided below

S.No              Situation Provident Fund- whether can be withdrawn or be transferred Pension fund – whether can be withdrawn or continued u/ Scheme Certificate Relevant Forms to be filled.
1 Employee puts in less than 10 years of service and leaves a covered establishment & joins a covered establishment within the waiting period of two months Cannot be withdrawn – but can only be transferred to new establishment cannot be withdrawn but can be continued  u/Scheme Certificate to be surrendered to the new employer to protect his pensionable past service. 1)Form 13 for transfer if new establishment is located in the same region of P.F office or form 13-A, if new establishment Is located in different region.

2) Form-10-C for Scheme Certificate for pension fund

2 Employee puts in less than 10 years of service and leaves a covered establishment & joins an exempted establishment  whether within the waiting period two months or beyond it Can be withdrawn or alternatively get the P.F transferred to new establishment Can be withdrawn- or alternatively scheme certificate can be obtained to protect past pensionable service, if he joins again a covered establishment. 1)Form 19 for withdrawal or 2)Form 13 for transfer if both the establishment are located in the same region of P.f office or Form 13-A, if located in different regions and  3) Form 10-C for withdrawal of pension fund or for obtaining scheme certificate
3 Employee puts in 10 years or more of service and attains the age of 50 years or more at the time of leaving a covered establishment & joining a covered establishment within a period of two months Cannot be withdrawn – but can only be transferred to new establishment Employee can not withdraw pension fund . To obtain scheme certificate  to be surrendered to the new employer to protect past service for pension purpose 1)Form 13 for transfer if both the establishment are located in the same region or Form 13-A, if located in different regions

2) From-C for scheme Certificate

4 Employee puts in 10 years or more of service and attains the age of 50 years or more at the time of leaving a covered establishment & joining an exempted establishment whether within a period of two months or beyond it Can be withdrawn – but can also be transferred to new employer. Employee can not withdraw pension fund . To obtain scheme certificate  to be surrendered to protect past service for pension purpose, if he joins a covered establishment latter  or can claim reduced pension 1)Form 13 for transfer if both the establishment are located in the same region or Form 13-A, if located in different regions

2) Form-C for scheme Certificate

3) Form 10-D for reduced pension.

5 Employee leaves an exempted establishment and joins a covered establishment He can withdraw pension as per the pension rules of the exempted establishment or alternatively, can get his P.F amount transferred from the previous employer to the new employer(present employer) Not applicable 1)Form 13 for transfer if both the establishment are located in the same region or Form 13-A, if located in different regions

 

For transferring his fund to the new employer, the employee has to fill in Form. 13, if the new employer is located in the same region of P.F office in which his previous employer is also located and Form-13-A, if the new employer is located in a different region and submit it to the new employer (present employer) who will forward it to the  relevant Provident Fund Office which will then take necessary steps to effect the transfer of the P.F amount of the employee to his P.F account under the new employer. The signature of the previous employer is not necessary on Form -13 or Form -13-A.

a)Procedure for transfer of Provident fund

For transferring his fund to the new employer, the employee has to fill in Form. 13, if the new employer is located in the same region of P.F office in which his previous employer is also located and Form-13-A, if the new employer is located in a different region and submit it to the new employer (present employer) who will forward it to the  relevant Provident Fund Office which will then take necessary steps departmentally to effect the transfer of the P.F amount of the employee to his P.F account under the new employer. The signature of the previous employer is not necessary on Form -13 or Form -13-A.

b)Procedure for withdrawal of Provident Fund

The employee shall fill in Form 19 and submit it to the previous employer to enable him to fill in details of contribution etc and forward it to the Regional Office of the Provident Fund under whose jurisdiction, the previous employer falls. The P.F Department shall settle it within 30 days of receipt of the application for withdrawal.

 c)Procedure for withdrawal of pension contributions or obtaining Scheme certificate

The employee can fill in Form 10-C and fill up the relevant column for indicating his option either for withdrawal of pension fund or obtaining Scheme Certificate under Pension Scheme as per his eligibility  and submit it to the Commissioner of Provident fund.

 d)Procedure for claiming  pension

 The employee has to fill in Form-D and send it to the previous employer to enable him to fill in the details by him and attest it and re-transmit it to P.F office concerned for disbursing the appropriate pension.

Important precautions to be taken while filling the forms

1)      Employee to ensure that his signature matches that on the P.F. Dept.’s record.

2)      Fill details correctly such as date of leaving ,P.F code number or bank account number and address etc.

3)      Employee to take the attestation/signature of the employer

PF is a retiral benifit which keeps accumulating and can be utilized for a specific event requiring lump-sum amount or can be encashed in time of need. Contributions to PF are tax deductible within the prescribed limits. This, coupled with the fact that PF accounts earn reasonable interest, PF is a an excellent tool to build a corpus.

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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

Employee Valuation

August 11, 2010 3 comments

This is a strange title, to begin with. we have heard of appraisals, performance evaluation, ratings etc- but Valuation ? As in finding the value or better, the right value of an employee?

In the real world, an employee is valued (basically we mean salaries & bonus etc) on the basis of his current remuneration, the position & designation that he /she holds, current organisation and very often even the place of work. Experience & capability are used as filtration parameters &  to decide the hike. Every increment or bonus is based on the current salaries . no exercise is carried out to see  if the “current ” salaries reflect the correct value of an employee or not.

Imagine a scenario where a human resource could be valued like a stock. What fundamentals will we look for ? Capability, experience, skills, attitude, pedigree, background, education, school, college ? Anything that can fundamentally define the valuation of the resource.

Taking this further, can a prospective or existing employee be valued for the skills that the person possesses suitably adjusted for the future value that one expects the employee to deliver. As the employee gains experience and acquires new skill sets and as the capability gets proved, the valuation goes up. On the other hand, the same should stagnate or even go down, in the opposite scenario. Various performance trends will also have an impact. This also means that the valuation will be absolute and not relative to any other person. However in case of 2 equally valued employees,a comparative analysis is unavoidable .

What about the market scenarios, in this case business prospects & growth of the particular industry or company ? and what about the demand & supply for a particular skill ?  should the valuation ( and therefore employee benefits) go up or down based on these factors even while a person remains in the same organisation ? Can this also mean that instead of laying off people, the impact will be only on the remuneration.

Frightening ! Are we looking at a future with a full variable- Valuation based remuneration ?

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