Different locations have different wage codes to follow, and HR can’t keep track of every law and be compliant. So, to avoid the hassle of tax compliances and avoid the fear of legal issues, HRMS offers automated tax management for HR professionals.
Let’s delve deeper into the topic to discuss the tax obligations and tax considerations that you should follow.
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Table of content
- An introduction to tax structure
- Tax obligations you must know.
- HRMS role in managing present day taxation by employees.
An Introduction to Tax Structure
Tax structure in India is divided into two categories, direct and indirect tax.
Direct tax is directly levied by the government on individuals. Income tax is a direct tax levied on individuals. The income tax rate applicable is dependent on the tax slabs as announced by Ministry of Finance every year in the annual budget which can be further extended to two regimes, the old regime and the new regime.
| Annual taxable income | New tax regime | Old tax regime |
|---|---|---|
| Up to Rs. 2.5 lakhs | Exempt | Exempt |
| Over Rs. 2.5 lakh to Rs. 3 lakhs | Exempt | 5% |
| Over Rs.3 lakh to Rs.5 lakh | 5% | 5% |
| Over Rs.5 lakh to Rs.6 lakh | 5% | 20% |
| Over Rs.6 lakh to Rs.9 lakh | 10% | 20% |
| Over Rs. 9 lakhs to Rs.10 lakh | 15% | 20% |
| Over Rs.10 lakh to Rs.12 lakh | 15% | 30% |
| Over Rs.12 lakh to Rs.15 lakh | 20% | 30% |
| Above Rs.15 lakh | 30% | 30% |
Indirect Tax is indirectly levied on taxpayers whenever they purchase any goods and services.
Old Regime vs New Regime
The old regime consisted of traditional structure. It has high tax rates as compared to the new regime and offers a wide range of deductions under various sections of the Income Tax Act.
The new regime, on the other hand, was introduced in Budget 2020 and has a simplified structure that offers a simpler tax filing process with fewer deductions and complexities.
Tax Obligations Every HR Must Know
While computing the payroll of an employee, an employer should be aware of all the tax obligations. Mandatory payroll deductions and contribution that are applicable to the citizens of India are,
- Provident Fund (PF): Employee Pension Scheme (EPS) and Employee Provident Fund (EPF) is a social security scheme by the Employee Provident Fund Organization (EPFO) which states that a part of the employee’s income is deducted and deposited during the tenure of their service.
It is the liability of the employer to deduct 12% of the EPF during the tenure of employee service and submit the same to the concerned authority. It is a statutory requirement for the company to deduct and deposit EPS to EPFO.
- Employee’s State Insurance (ESI): Employee State Insurance is a social security scheme by Indian Government passed under the Employee State Insurance Act, 1948.
This scheme provides medical and financial assistance to employees and their families in case of sickness, maternity, disability, or death due to employment injury. The scheme varies from state to state so for the remote workers you need to take special considerations for this scheme.
- Tax Deducted at Source (TDS): TDS is the most basic tax deduction from employee’s salary which is computed as per the tax slabs, their investment declarations and the regime chosen by the employee.
The responsibility of deducting tax falls on the employer when they generate the pay slip through the payroll system. You need to consider the regime, investment made by the employee that exempts taxes and accurate calculation.
- Professional taxes (PT): As the name not-suggests, the professional tax is paid by everyone working in any industry. It is levied on all kinds of professions, trades, and employment.
It is collected by the state government although not all states in the country choose to levy professional tax. It varies from percentage to percentage in different states.
- Wage codes: The code on wages, 2019 or simple wages code is an act of the parliament that seeks to regulate timely and fair payment of minimum wages for all the workers in the country.
It consolidates the four wage codes namely, the Codes on Wages, 2019; the Code on Social Security, 2020; the Industrial Relation Code, 2020; and the Health and Working Condition Code, 2020.
Tax compliance in accordance with the state or local tax rules is important since it affects the employee monetary satisfaction and is directly related to the employee’s net pay. Since it’s a lot of calculations, digital transformation to process helps us out in the moment.
We can count on HRMS for tax administration, nowadays. HROne provides an automated aid to personalize the statutory details of the employees.
The selection of tax regime is up to the choice of employee and the tax slabs are altered depending on it.
HR can always help their employees to choose the right regime by stating the facts and differences between both.
Role of HRMS for Tax Administration
With all the tax calculation and that too for such a large workforce, it is impossible for HR to sit all day and calculate the tax and deductions for every employee. Well, what do we have technology for?
HRMS software today has evolved the HR culture from being hectic and all manual to simplified and all automated which makes tax management in HRMS as easy as pie. Let’s see how HRMS can help you to manage payroll taxes.
Automated tax computation: HRMS provides an automated tax calculation feature for each employee according to their chosen regime and investments made. It generates a breakdown of salary structure with the employee data provided. This automation greatly saves time and effort for the HR leaders.
- Challan generation and submission: Challans are the electronically generated receipts for the taxes paid. An HR software can generate challans for various taxes with accurate data. The HR is responsible for submitting the challans to the government portals or the authorized bank.
- Security and safety issues: The HRMS resolves the safety concerns for the employees. The biggest limitation of manual processing is data breach which can be solved through digital transformation.
- Reporting and audit trail: Since the process has been recorded and stored in the system, it maintains a complete trail of the tax calculations, challan submissions copies, employee investment evidence, PF information and related activities. It elevates easy retrieval of the of the data for audits and reviews.
Managing the taxes for payroll and tax compliance go hand in hand. HRMS empowers HR professionals and ensures accurate, efficient and compliant payroll processing and managing the payroll tax liabilities.
With this we will conclude this blog right here. Hope it helped!
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