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Query and Response

My employer deducts 24% of my Basic salary out of my CTC towards PF thereby reducing my net take home salary. I need a higher take home. What should I do to minimize PF Deductions from my CTC ?

It depends on the level of your salary. If your basic salary is above Rs 15,000, then you can request your employer to limit the PF deduction @ 12% of the statutory minimum threshold of basic salary of Rs 15,000. Should your basic salary be below Rs 15,000 you have no option to reduce your PF contribution.
You can refer to the attached departmental communication from PF Commissioner, taking into consideration of Supreme Court judgment in Marathwada Gramin Bank Employees Union vs Management of Marathwada Gramin Bank stating that it is employer or employee’s option to contribute beyond statutory wage ceiling (currently Rs 15,000) and dept will not force anyone to contribute over and above statutory wage ceiling.

Posted date: 10-03-2017
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Is it mandatory to get registered as STP/NON-STP unit for any IT/ITES companies who are into exports under STPI? Is the submission of Softex forms by NON-STP units mandatory?

Any company who does IT/ITES exports through Data communication links needs to submit the Softex Form for certification (Refer RBI Master Circular No. RBI/2013-14/14 dated 1st July 2013 (Para B 15), RBI Circular No.80 dated 15th February 2012 and RBI Circular No.43 dated 13th September 2013)

For getting the Softex certification from the Designated Authority (STPI), the companies have to register with STPI either STP unit or as NON-STP unit Nevertheless, the companies registered as STP units will have other benefits apart from getting their Software Exports certified.

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Posted date: 29-07-2015

An employee who is working in an Indian company has been given an Health Insurance benefit by the Parent Company of other country. Please clarify would there be any perquisite value applicable on this benefit at the hands of the employee.

As per Sec.17(2)(v) of Income Tax Act, any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under EPF Act, 1952, etc. to effect an assurance on the life of the assessee or to effect a contract for an annuity, shall be treated as Perquisite. It may be noted that Life Insurance or contract for any annuity (like pension funds) are covered under this head but not Health and personal accident policies. Hence, Group Insurance policies taken by employer for employees' health & personal accident shall not be treated as perquisite.

Again as per Sec.17(2)(iv) of the Act, any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee, shall be treated as Perquisite. The cost borne by the employer shall be treated as the perquisite value and the same shall be taxed as Salary Income in the hands of employee. If the employer reimburse the cost of insurance policy taken by employee by himself (be it life, health or personal accident), it could fall under this section and cost reimbursed by employer could be taxable in the hands of employee.

The subject refers to health insurance policy taken by foreign parent company, it may be noted with regard to foreign insurance payments that there are some restrictions under FEMA. As per Exchange Control Manual issued by RBI, persons, firms, companies, etc. resident in India are not permitted to take general insurance of any kind with insurance companies in foreign countries without prior approval of Reserve Bank. Besides, permission of Government of India under General Insurance Business (Nationalisation) Act, 1972, is also required in such cases. (Refer https://www.rbi.org.in/Scripts/ECMUserView.aspx?Id=53&CatID=10#chap15a_1) Hence, payment for policies taken by the parent company should not be made from Indian Subsidiary company. Care should be taken in this regard.

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Posted date: 28-07-2015
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I am an IT consultant. I want to minimize my Tax. Please advice.

Pressuming that you are a freelance IT consultant (as a sole proprietor), with an office set-up and establishment of your own, you need to segregate all business expenses such as travel, communication, office rent & maintenance, depreciation, support staff, etc. for running your IT consultancy business and claim such expenses as deduction from your Income. You are required to pay tax only on the net income. If the gross income exceeds Rs.25 lakhs, your books requires to be audited by a Chartered Accountant.

Apart from the business expenses, if you have made any investments/payments in specified securities/funds listed under Sec.80C of Income Tax Act, such as LIC premium, contribution to PPF, NPS, Tuition fee of your childern, repayment of priniciple of Housing Loan, Investments in Tax Saving Mutual Funds, NSC, Tax saving 5 year fixed deposits in Banks, etc, these payments also can be claimed as deductions from Net Income. However, this deduction is subject to a cap of Rs.1.5 lakhs from the financial year 2014-15. If any medical insurance premium was paid during the year for your family during the year, the same can be claimed as deduction under Sec.80D of Income Tax Act. This deduction is limited to Rs.15,000 for FY 2014-15 (Rs.30,000 for FY 2015-16) for the payments made to your family. A further deduction of Rs.15,000 for FY 2014-15 (Rs. 30,000 for FY 2015-16) is allowed for the premium paid for the health of your parents. If you are paying rent, a further deduction upto Rs.2,000 is allowed under Sec.80GG of Income Tax Act, subject the conditions specified under this section.

There are few other deductions under Sec.80 DD (Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability), 80DDB (Deduction in respect of medical treatment, etc of specified diseases of dependents), 80E (Deduction in respect of interest on loan taken for higher education), 80G (Deduction in respect of donations to certain funds, charitable institutions, etc), 80U (Deduction in case of a person with disability), but they may be applicable only to specific cases and may require to examine, if they are applicable to your case.

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Posted date: 22-07-2015
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I understand the Service Tax rates are proposed to be increased with the 2015 Budget. Has this been effected and how does it work ?

The service tax rates have been increased to 14% w.e.f. 1-Jun-2015.

If any 2 out of 3 events, i.e, date of service performed, date of invoice or date of payment happen before 1-6-2015, the service tax rate to be applied is 12.36%. If any 2 out of these 3 events happen after 1-6-2015, the service tax rate to be applied is 14%

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Posted date: 11-06-2015