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Understanding Statutory Payments & Deductions

The document outlines various statutory payments and deductions, including Provident Fund (PF), Gratuity, and Employee State Insurance (ESI), along with their calculations and eligibility criteria. It explains the differences between pre-tax and post-tax deductions, the Payment of Bonus Act, and concepts like wages, overtime, and salary packaging. Additionally, it distinguishes between monetary and non-monetary benefits provided to employees.

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15 views4 pages

Understanding Statutory Payments & Deductions

The document outlines various statutory payments and deductions, including Provident Fund (PF), Gratuity, and Employee State Insurance (ESI), along with their calculations and eligibility criteria. It explains the differences between pre-tax and post-tax deductions, the Payment of Bonus Act, and concepts like wages, overtime, and salary packaging. Additionally, it distinguishes between monetary and non-monetary benefits provided to employees.

Uploaded by

bishnubauri955
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Class:-2

1. What are Statutory Payments and Deductions?


Explanation
Statutory payments = money employer MUST pay by law
Statutory deductions = money employer MUST deduct by law.
Examples
PF contribution = Statutory deduction
Bonus = Statutory payment
TDS = Statutory deduction
No calculations needed here.

2. What is Provident Fund (PF) and how is it calculated?


Explanation
PF is a retirement savings scheme where both employee & employer contribute.
Calculation Example
Employee’s Basic salary = ₹15,000
Employee PF = 12% of 15,000 = ₹1,800
Employer contribution splits:
EPS = 8.33% of 15,000 = ₹1,249.50
EPF = 3.67% of 15,000 = ₹550.50
Total PF deposited every month
₹1,800 (employee) + ₹1,800 (employer) = ₹3,600

3. What is Gratuity and when is an employee eligible for it?


Explanation
Paid after 5 years of service.
Formula
Gratuity = (15/26) × Last basic salary × Years of service
Example Calculation
Basic salary = ₹20,000
Years of service = 7 years
Gratuity = (15/26) × 20,000 × 7
= 0.5769 × 20,000 × 7= ₹80,769
4. What is ESI and who is covered under it?
Explanation
For employees earning ₹21,000 or less.
Contribution Calculation
Salary = ₹18,000
Employee contribution = 0.75% of 18,000 = ₹135
Employer contribution = 3.25% of 18,000 = ₹585
Total ESI contribution = ₹720

5. What are Pre-Tax and Post-Tax Deductions?


Explanation
Pre-tax deductions reduce taxable income.
Post-tax does not.
Example
Salary = ₹30,000
If PF = ₹1,800, taxable salary becomes:
30,000 – 1,800 = ₹28,200
This reduces income tax.
Post-tax example:
Loan EMI = paid after salary, no tax benefit.

6. What is Professional Tax (PT)?


Explanation
State-level tax deducted by employer each month.
Example (West Bengal)
If monthly salary = ₹25,000
PT = ₹200/month

7. What is the Payment of Bonus Act and how is bonus calculated?


Explanation
Bonus = 8.33% to 20%
Calculated on ₹7,000 OR Minimum Wage, whichever is higher.
Example Calculation
Basic + DA = ₹18,000
Minimum wage = ₹10,000
So, bonus should be calculated on ₹10,000.
If minimum bonus (8.33%):
Bonus = 8.33% × 10,000 = ₹833 per month
Annual bonus = 833 × 12 = ₹9,996

8. What are Wages, Minimum Wages & Overtime?


Explanation
OT = 2 times the normal wage rate.
➢ Example OT Calculation
Wage rate = ₹100/hour
Worked 2 hours extra
Overtime wage = 2 × 100 = ₹200 per hour
Total OT for 2 hours = ₹400

9. What is Salary Packaging (CTC Break-up)?


Explanation
CTC includes everything: Basic, HRA, PF, Bonus, etc.
➢ Example CTC Break-up
CTC = ₹4,00,000/year
Break-up:
Basic = ₹1,80,000
HRA = ₹90,000
Allowances = ₹70,000
Employer PF = ₹21,600
Bonus = ₹18,400
Total = ₹4,00,000
10. What are Monetary and Non-Monetary Benefits?
Explanation
➢ Monetary = financial benefits
➢ Non-monetary = non-financial motivational benefits
Examples
➢ Monetary:
Incentive: ₹2,000 for meeting sales target
Attendance bonus: ₹500
➢ Non-Monetary:
"Employee of the Month" certificate
Flexible working hours
Free training programs

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