Payroll is the process of paying salaries/wages of company's employees, which includes tracking hours worked, calculating employees pay, and distributing payments through direct deposit to employee bank accounts or by check. However, companies must also perform accounting functions to record payroll, taxes withheld, bonuses, overtime pay, sick time, and vacation pay. Companies must put aside and record the amount to be paid to the government for Social Security, Health Insurance, Professional Tax, Income Tax and Labour Welfare Fund etc.
Payroll is the compensation a business must pay to its employees for a specific period or on a given date. It is usually managed by the accounting or human resource department of a company. Small-business payrolls may be handled directly by the owner or a professional consulting firm.
In an employee salary payment, there are components like earnings and deductions. The following are the earnings and deductions. The earnings are Basic Pay, House Rent Allowance (HRA), Conveyance Allowance, Children Education Allowance, Medical Allowance, Leave Travel Allowance (LTA), Special Allowance, Skill Allowance and Bonus etc., and the deductions are Professional Tax (PT), Employee Provident Fund (EPF), Employee State Insurance (ESI), Income Tax Deduction (TDS) and Labour Welfare Fund etc.
Basic pay refers to the fixed amount of salary or wages that an employee receives for their work before any additional allowances, bonuses, or deductions. It is a taxable component of the salary.
HRA full form is House Rent Allowance. It is a part of employee salary provided by the employer for the expenses incurred towards rented accommodation. Employee can claim HRA exemption only if he is residing in a rented house. HRA exemption is covered under Section 10(13A) along with rule 2A of the Income Tax Act, 1961. However, in some cases HRA is allowed even if the employee owns house. For example, the employee can claim HRA if he is residing in a rented house in Bengaluru (ie. place of employment is Bengaluru) while he owns a house in Delhi. Tax exemption is available under the Income Tax Act, 1961.
Conveyance allowance also known as transport allowance is paid to the employees of the company to compenstate for the travel of the employee from the residence to and from the workplace. This is in addition to the basic salary component and part of employee’s gross salary. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
It is a fixed allowance paid by the employer to his employee for the benefits of employee’s children education. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
A medical allowance is a defined amount provided by the company to the employee regardless of whether the individual receives medical treatment and submits bills to demonstrate the expenditure or not. Now, medical reimbursement occurs only when the company reimburses the employee for the real costs spent. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
LTA or leave travel concession is the allowance paid by the employer to cover its employees travel expenses, while employee goes on leave with or without his family. LTA forms a part of employee’s cost to company (CTC) and is given as a yearly benefit but can be availed of monthly.
A special allowance meaning is a sum of money that an organization pays its employees for various reasons and to meet different purposes. Special allowance is a fixed amount that is given to employees over and above the basic salary in order to meet certain requirements and it is a taxable component of the salary.
It is an allowance given to those employees who possesses special skills or knowledge in the subject and it is a taxable component of the salary.
Bonus is the compensation given to the employee in addition to the amount of pay specified as the base salary. A bonus is financial compensation that is above and beyond the normal salary of the employee and it is a taxable component of the salary.
It is deducted by the employer from their employee's salary every month and remitted to state exchequer and in some states sent to the Municipal Corporation. It is a deductible salary component while computing employees tax liability.
The employer has to deduct 12% of his employees salary every month and deposit the same along with an equal share of employer to the Employee Provident Fund Account. For example: If the basic salary is Rs. 15,000 per month, the employee contribution shall be 12 % of 15000, which comes to Rs 1800/- and an equal contribution of Rs.1800/- should be paid.
The employer has to deduct 12% of basic salary + DA of employee and employer also pay an equal amount to PF department. The employer also needs to pay 0.5% of basic salary+DA of employee to Employee Deposit Linked Insurance Scheme and apart from it, he also has to pay an administration charges of 0.5% of basic salary+DA of employee to the PF department. Out of 12% contribution of employer portion, 8.33% will be paid towards pension scheme and rest 3.67% paid towards Provident Fund.
The contribution payable to the Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate. The rates are revised from time to time. Currently, the employee's contribution rate (w.e.f. 1.07.2019) is 0.75 % of the wages and that of employer's is 3.25% of the wages paid/payable in respect of the employees in every wage period. Employees in receipt of a daily average wage upto Rs.176/- (w.e.f. 01.09.2019) are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
As per the provisions of Section 192 of the Income Tax Act, 1961, when an employer pays salary to an employee, the employer has to deduct certain amount as TDS if the employee’s salary is over and above the tax exemption limit. However, this deduction of TDS is done taking into account the allowable deductions and the employees tax savings for that particulars financial year.
Labour Welfare Fund is a fund contributed by Employer, Employee and in some states by the Government as well. The purpose of these welfare funds is to provide housing, medical care, educational and recreational facilities to the workers and their dependents. It is a deductible component in employee’s salary.
An employee pay slip is a document which an employee receives from their employer every month. It indicates everything from the gross salary to the net take-home pay and deductions. After an employer provides his employees pay, the pay slip gets sent out each month.
Form 16/ 16A is the certificate of deduction of tax at source and issued on deduction of tax by the employer on behalf of the employees. These certificates provide details of TDS / TCS for various transactions between deductor and deductee. It is mandatory to issue these certificates to Tax Payers.
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Rambabu Director, Cybervillage Solutions Pvt ltdPayroll is the process of paying salaries/wages of company's employees, which includes tracking hours worked, calculating employees pay, and distributing payments through direct deposit to employee bank accounts or by check. However, companies must also perform accounting functions to record payroll, taxes withheld, bonuses, overtime pay, sick time, and vacation pay. Companies must put aside and record the amount to be paid to the government for Social Security, Health Insurance, Professional Tax, Income Tax and Labour Welfare Fund etc.
Payroll is the compensation a business must pay to its employees for a specific period or on a given date. It is usually managed by the accounting or human resource department of a company. Small-business payrolls may be handled directly by the owner or a professional consulting firm.
In an employee salary payment, there are components like earnings and deductions. The following are the earnings and deductions. The earnings are Basic Pay, House Rent Allowance (HRA), Conveyance Allowance, Children Education Allowance, Medical Allowance, Leave Travel Allowance (LTA), Special Allowance, Skill Allowance and Bonus etc., and the deductions are Professional Tax (PT), Employee Provident Fund (EPF), Employee State Insurance (ESI), Income Tax Deduction (TDS) and Labour Welfare Fund etc.
Basic pay refers to the fixed amount of salary or wages that an employee receives for their work before any additional allowances, bonuses, or deductions. It is a taxable component of the salary.
HRA full form is House Rent Allowance. It is a part of employee salary provided by the employer for the expenses incurred towards rented accommodation. Employee can claim HRA exemption only if he is residing in a rented house. HRA exemption is covered under Section 10(13A) along with rule 2A of the Income Tax Act, 1961. However, in some cases HRA is allowed even if the employee owns house. For example, the employee can claim HRA if he is residing in a rented house in Bengaluru (ie. place of employment is Bengaluru) while he owns a house in Delhi. Tax exemption is available under the Income Tax Act, 1961.
Conveyance allowance also known as transport allowance is paid to the employees of the company to compenstate for the travel of the employee from the residence to and from the workplace. This is in addition to the basic salary component and part of employee’s gross salary. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
It is a fixed allowance paid by the employer to his employee for the benefits of employee’s children education. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
A medical allowance is a defined amount provided by the company to the employee regardless of whether the individual receives medical treatment and submits bills to demonstrate the expenditure or not. Now, medical reimbursement occurs only when the company reimburses the employee for the real costs spent. Now it is a taxable component as Income Tax Department is allowing a Standard Deduction of Rs. 50,000/-.
LTA or leave travel concession is the allowance paid by the employer to cover its employees travel expenses, while employee goes on leave with or without his family. LTA forms a part of employee’s cost to company (CTC) and is given as a yearly benefit but can be availed of monthly.
A special allowance meaning is a sum of money that an organization pays its employees for various reasons and to meet different purposes. Special allowance is a fixed amount that is given to employees over and above the basic salary in order to meet certain requirements and it is a taxable component of the salary.
It is an allowance given to those employees who possesses special skills or knowledge in the subject and it is a taxable component of the salary.
Bonus is the compensation given to the employee in addition to the amount of pay specified as the base salary. A bonus is financial compensation that is above and beyond the normal salary of the employee and it is a taxable component of the salary.
It is deducted by the employer from their employee's salary every month and remitted to state exchequer and in some states sent to the Municipal Corporation. It is a deductible salary component while computing employees tax liability.
The employer has to deduct 12% of his employees salary every month and deposit the same along with an equal share of employer to the Employee Provident Fund Account. For example: If the basic salary is Rs. 15,000 per month, the employee contribution shall be 12 % of 15000, which comes to Rs 1800/- and an equal contribution of Rs.1800/- should be paid.
The employer has to deduct 12% of basic salary + DA of employee and employer also pay an equal amount to PF department. The employer also needs to pay 0.5% of basic salary+DA of employee to Employee Deposit Linked Insurance Scheme and apart from it, he also has to pay an administration charges of 0.5% of basic salary+DA of employee to the PF department. Out of 12% contribution of employer portion, 8.33% will be paid towards pension scheme and rest 3.67% paid towards Provident Fund.
The contribution payable to the Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate. The rates are revised from time to time. Currently, the employee's contribution rate (w.e.f. 1.07.2019) is 0.75 % of the wages and that of employer's is 3.25% of the wages paid/payable in respect of the employees in every wage period. Employees in receipt of a daily average wage upto Rs.176/- (w.e.f. 01.09.2019) are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
As per the provisions of Section 192 of the Income Tax Act, 1961, when an employer pays salary to an employee, the employer has to deduct certain amount as TDS if the employee’s salary is over and above the tax exemption limit. However, this deduction of TDS is done taking into account the allowable deductions and the employees tax savings for that particulars financial year.
Labour Welfare Fund is a fund contributed by Employer, Employee and in some states by the Government as well. The purpose of these welfare funds is to provide housing, medical care, educational and recreational facilities to the workers and their dependents. It is a deductible component in employee’s salary.
An employee pay slip is a document which an employee receives from their employer every month. It indicates everything from the gross salary to the net take-home pay and deductions. After an employer provides his employees pay, the pay slip gets sent out each month.
Form 16/ 16A is the certificate of deduction of tax at source and issued on deduction of tax by the employer on behalf of the employees. These certificates provide details of TDS / TCS for various transactions between deductor and deductee. It is mandatory to issue these certificates to Tax Payers.
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