Payroll Statutory Reports in IndiaBy Rajendra Prasad Sappa, Chief Delivery Officer, AscentHR

Payroll statutory reports are specific reports that employers need to generate and file periodically in prescribed formats with concerned government authorities depending on the employer company’s state and location. The government authorities require these payroll reports to calculate and verify whether the employer complies with compensation, benefits, and employment-related social security provisions and tax laws. All these make it crucial to maintain accurate record-keeping for payroll compliance success.

However, managing payroll-related compliance can be resource-intensive, often requiring Payroll software solutions or relying on subject matter experts who have to stay abreast of the laws by regularly monitoring legislative updates and court decisions. This is one of the primary reasons why most businesses either use payroll software or outsource their payroll compliance activities to make the adherence process easy and stay compliant with payroll reporting requirements established by central, state, and local government agencies.

In this blog, we will provide a general overview of the legal framework governing payroll compliance and explain why it is essential for employers to comply with payroll statutory requirements. We will also discuss various payroll statutory reports at the central, state, and local levels and highlight some key statutes and regulations employers must know.

The Purpose and the Benefits

Payroll statutory reporting promotes an organization’s compliance with legal requirements mandated by government agencies. Several reports must be generated and filed, each serving a different purpose. If employers are unaware of these, they will likely file wrong returns and attract penal consequences.

For instance, consider Form 24Q. It is a crucial form containing TDS (tax deducted at source) information. A delay in filing Form 24Q within the specified due dates will attract a late filing fee of INR 200 per day until filing the return. Also, penal interests in the 1% to 1.5% range will be applicable if TDS is not deducted or deposited. Besides this late fee and penal interests, the Assessing Officer (AO) may also impose penalties.

Given this context, effective compliance management is crucial for payroll compliance success, which can lead to several benefits for all stakeholders—employer, employee, and government. By thoroughly understanding the employment regulatory compliance framework, employers can avoid unnecessary legal disputes and minimize compliance failure risk.

For government agencies, these payroll-related statutory reports submitted to government agencies serve as valuable data for carrying out various employment-related statistics. For instance, data from these reports can estimate the number of new subscribers who have availed benefits under various social security schemes, such as the Employees’ Provident Fund, Employees’ State Insurance Scheme, and the National Pension Scheme (NPS). The government can get different perspectives on employment levels in the formal sector and even track the progress made in formal employment using these measurable data.

Payroll Statutory Reports

Payroll statutory reports can be divided into five categories: income tax reports, professional tax reports, PF (provident fund) reports, ESI (Employees’ State Insurance) reports, and LWF (Labour Welfare Fund) reports.

1. Income Tax Reports
Form24Q

Form 24Q is primarily used by employers or entities (i.e., deductors) who deduct TDS on salaries as per the Income Tax Act of 1961. It reports details of TDS deducted and deposited by deductors from the employees’ salary payments.

Organizations must file Form 24Q reports quarterly, adhering to the due dates and in the prescribed format specified by the Income Tax Department (ITD). This is required for the ITD to verify and tally the TDS returns or statements with tax filings to ensure accuracy and transparency in tax liability calculations and the tax deduction process.

Filing Frequency
Form 24Q must be filed quarterly by the deductor (i.e. employer). The due dates for filing Form 24Q are as follows:

Sl. No	Date of ending of quarter of financial year	Due date
1.	Quarter ending 30th June	Due by 31st July of the same financial year
2.	Quarter ending 30th September	Due by 31st October of the same financial year
3.	Quarter ending 31st December	Due by 31st January of the next calendar year
4.	Quarter ending 31st March	Due by 31st May of the next calendar year

Types of Returns

Form 24Q is used to file two types of TDS returns, depending on the nature of payments:
• Form 24Q (Regular): For regular employees where TDS is deducted from salaries.
• Form 24Q (Correction): Used to rectify any errors in the regular Form 24Q filed earlier.

Form 24Q Submission

Government and corporate deductors must furnish their TDS returns electronically (e-TDS return). Deductors (other than government and corporates) may file TDS returns electronically or physically.

The process involves employers detailing employees’ income, deductions, and other relevant financial information for each quarter. This is followed by detailed reporting covering exemptions and other information specifying the basis for arriving at taxable income and tax liability. This data forms part of the basis for issuing Form 16.

Digitally Signed Form-16

After filing the TDS return for the 4th quarter on or before 31 May, the employer must issue the TDS certificate (i.e. Form 16) to their salaried employees within 15 days of May 31. In other words, employers need to generate Form 16 and issue it to their employees on or before June 15th of the assessment year for which the ITR (income tax return) is being filed. For example, for the financial year 2023-24 (assessment year 2024-25), Form 16 should be issued by June 15th, 2024.

Form 16 is a digitally signed document issued by the employer and contains reports, such as Form 16 Part A, Form 16 Part B, and Form 12BA – all merged into a single PDF file.

2. Professional Tax Returns

Professional tax is a state-specific direct tax levied on income. The professional tax rates vary by state, and some states do not have this tax. Generally, states follow an income-based slab system to levy professional tax. Employees who are earning a salary equal to or more than the salary slabs fixed by the state government are liable to pay the professional tax monthly. The employer is responsible for deducting the professional tax from the employee’s salary and remitting the same to the state government on the employee’s behalf.

Compliance requirements regarding the filing of statements, returns, and payment of professional tax vary by state.

For example, in Karnataka, employers registered under the Profession Tax Act must file monthly statements in Form 5-A and the annual return in Form 5 online. Professional taxes can be paid online or in Cash, Cheque, DD, or Challan.

The monthly statements should show the salary and wages paid by employers to their employees and the amount of tax deducted. Employers must furnish these monthly statements on or before the 20th of each succeeding month, along with payment of the total amount of tax as per the statement. In the case of the annual return, the employer needs to furnish the return in Form 5 within 30 days of the expiry of a year.

Payroll administrators need to generate required information and create reports at the required frequency based on the city, state, or union territory in which their company operates. Good payroll software can help prepare these reports.

3. Employees’ Provident Fund Returns

Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 and the schemes framed there under are meant to provide social security in the form of a Provident Fund, Pension, and Insurance to all the employees who are employed for wages, in or in connection with the work of an establishment. Employees’ Provident Fund Organization, shortly known as EPFO, is a statutory body (under the Ministry of Labour and Employment, Government of India) that administers retirement saving schemes, such as the Employees’ Provident Fund scheme, Employees’ Pension Scheme (EPS) and Employees’ Deposit-linked Insurance Scheme (EDLI). EPFO has simplified the Provident Fund returns filing processes for employers.

Monthly return

It is mandatory for all the employees who are drawing wages (the term “Wages” has been defined under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952) equal to or less than INR 15000/- per month to become a member of EPF. The concerned employer has to contribute 3.67% of the employee’s wages towards each employee’s EPF account, along with 8.33% towards the Employees’ Pension Scheme. Also, the employer has to deduct 12% of each employee’s wages and has to pay towards the Employees’ Provident Fund account. Thus, each employee’s EPF account will earn 15.67% of wages towards the Provident Fund and 8.33% towards the Employees’ Pension Scheme (EPS). The concerned employer is liable and responsible for making all the arrangements to make the said contributions and ensure that it should be paid by the 15th day of the succeeding month after the wage month. Delayed remittance will attract penal interest and damages, which should be borne by the employer. Apart from the above contributions, the employer is also liable to pay 0.5% of wages towards admin charges and the Employees’ Deposit-Linked Insurance Scheme (EDLI), respectively.

Contributions towards EPS, EDLI, and Admin charges cannot be deducted from the employee’s wages. It is the sole responsibility of the employer. The upper wage limit on which EPS and EDLI contributions get calculated is INR 15000/- per month. The wage limit for EPF contributions is also 15000/- per month. However, employees and employers are free to contribute towards EPF on wages more than INR 15000/- per month upon submitting a joint declaration to EPFO.

The employer must submit monthly returns through the Employer e-seva portal. The returns will include basic information for both new and departing members, as well as member-specific information about pay and contributions.

4. ESI Monthly Contribution Report

The Employees’ State Insurance Scheme, shortly known as the ESI scheme, is another social security scheme that mandates contributions from employers and employees. This is governed by the Employees’ State Insurance Corporation (ESIC) under the Employees’ State Insurance Act, 1948. All the employees who are earning wages up to or equal to INR 21,000/- per month are covered under this scheme. Employees who are earning more than INR 21,000/- salary per month are excluded from the scheme. Please note that there is no voluntary coverage under the scheme.

The contributions are payable monthly at a fixed percentage of the wages paid. The employer has to deduct 0.75% of the wages from each employee and pay it to the ESIC along with the employer’s share of 3.25% of each employee’s wages. The employer is liable to pay the contributions to the ESIC by the 15th of the succeeding month after the wage month.

Applicable employers with employees contributing to the ESIC must file the monthly contribution data online to the ESI Corporation through the ESIC portal and make the ESI contribution payments by generating a challan online through the ESIC portal.

The process involves preparing and uploading the Excel spreadsheet with the employees’ ESI monthly contribution details to generate a challan number. This step is followed by the online payment using the generated challan number.

Non-payment or delayed payment of employees’ contributions deducted from their wages but not paid to the government amounts to a “Breach of trust”. It is punishable under IPC 406, 409 and an offence under the ESI Act, 1948. Additionally, delayed payments attract penal interest and penalties.

Major benefits to the employees and their families under the ESI Scheme include medical, sickness, maternity, disablement, and dependent benefits; unemployment allowance; old-age medical care; vocational training; physical rehabilitation allowance; confinement expenses; and funeral expenses, among others.

5. Labour Welfare Fund Contribution Statement

Labour welfare fund (LWF) is another state-specific statutory contribution that employers and employees must make periodically. The rules, regulations, rates, and periodicity of contributions relating to the LWF differ from state to state.

Generally, with respect to applicable employees, an LWF contribution at the prescribed rates is payable by the employee, employers, and the state government. Apart from periodical contributions, an employer is also liable to pay the unclaimed payments of the employees, if any, to the state LWF Board.

The employer must furnish a statement of contribution in a prescribed format to the concerned officer in the State’s Labour Welfare department periodically. This statement typically contains the names of employees, their period of engagement, monthly wages drawn by them, and the designation of those employees. For instance, in Karnataka, employers must furnish the LWF contribution statement in Form D every year on or before 15th January of the succeeding year after the contributions period. In Maharashtra, Form A-1 is used to furnish the statement of employees’ and employer’s contributions as of 30th June and 31st December, respectively.

Conclusion

Understanding and effectively managing applicable payroll statutory reports is essential for businesses to ensure compliance with regulatory requirements and maintain smooth operations. Each type of statutory report serves a distinct purpose, from income tax and professional tax deductions to contributions to employee welfare schemes. Employers fulfill their legal obligations and also benefit business-wise by diligently preparing and submitting these reports on time.

As the payroll compliance landscape and its adherence requirements are becoming more complex by the day, embracing digital platforms and professional services can further streamline the process, enabling businesses to focus on their core activities while ensuring financial and legal integrity.