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What is Employer Tax Withholding Obligations?
One of the very important tasks for the employer in regard to payroll processing is to calculate the tax deduction from the employee’s salary. For this, the employer needs to understand and be updated with the tax rules and regulations. The responsibility has been given to the employer with due trust that the employer will ensure correct deductions and exemptions and no fake proofs will be allowed.
Employers want to be focussed on the business, however, they also want to fulfil their obligations effectively in regard to their people. Greenvissage makes this possible as it performs like an extended team of the employer communicating with the employees one to one and with ease brought in by technology. Greenvissage takes care of the obligations stepping in the shoes of the employer. The decision making is always guided by the principal of maintaining balance between the tax laws, employee consideration and implication on employer.
PAN needs to be mandatorily obtained from each employee in whose case tax is due to be deducted. If PAN is not provided by any employee then the employer has to deduct tax at 20% even on the income which is falling in 10% bracket.
Employer needs to collect the investment details at the start of the year and the proofs at the end of the year for determining the projected tax for the year and the actual tax for the year respectively.
The deducted tax from employee’s salary needs to be deposited to the Government account within prescribed due dates (monthly). Interest implication, penalty and imprisonment are the consequences for non deduction, short deduction or non payment within these due dates.
Quarterly withholding tax returns need to be submitted which has the compilation of all TDS deductions of the quarter. Implication of non submission is a fee of Rs 200 per day of delay from the due date of submission to the date when return is submitted. But the fee will not exceed the total tax deductible in that quarter.
If a quarterly return is incorrect or not submitted, a penalty of Rs 10,000 to Rs 1,00,000 may also be levied.
TDS certificate (Form 16) in the prescribed form needs to be issued to every employee at the year end. If not issued within due date, a penalty of Rs 100 per day till the certificate is issued can be levied.
The income of the previous employer should be considered for tax deduction. Hence current employer must obtain a statement of salary provided by the previous employer to the employee.
Budget 2015 explicitly provided that the Employer will obtain evidence of the prescribed claims/ deductions/ exemptions from the employees and verify these to allow for TDS. Verification of the proofs is a lengthy process as each and every claim made by employee needs to be validated for being genuine and as per law.
Where no proofs can be taken from employees, the employer should ensure that appropriate signed declarations are taken from them.
If feasible for the company, employer can contribute to superannuation fund, pension schemes like National Pension Scheme, provident fund, keep exploring other retirement benefit avenues for employees. Also, employer can give various perquisites to employees depending upon the hierarchy and the need. Employer can consider taking health insurance/ accident insurance plans for employees. All the benefits provided to employees need to be analysed from the perspective of taxability also. TDS per month may substantially change due to these factors.
Employer can have bonus/ incentive policies to encourage the employees to do better job. If an employee completes five years of service in the organisation then the employer has to mandatorily pay gratuity specified under the Gratuity Act. The calculations for the amount are provided in the Act. Bonus is fully taxable in the hands of the employee and hence to be included on the Form 16. Gratuity is exempt subject to certain conditions.
A company having 20 or more employees needs to mandatorily get registered for provident fund. The employer has to contribute 12% of employee’s basic salary to this fund and employee contributes 12%. Both of them can voluntarily contribute more. The employer’s contribution is used to provide pension to the employee after retirement. Company must check applicability of this. Tax implication of this should be correctly considered.