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Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

Image Credits: Photo by Markus Winkler from Pexels

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A New Spin to Tagore’s Immortal Lines – “Where the Mind is Without Fear and the Head is Held High”

Two things happened in the past few days that got me thinking even more about something that has been playing on my mind for some time now. The first was a conversation I had with a friend, with whom I reconnected after a gap of several years. In the course of our conversation, he told me that his twenty five-year old son runs his own start-up that does cutting-edge work in the field of AI. I was somewhat surprised to hear this because when the children were in school, his wife would often complain about the boy’s poor academic performance. As if he had read my mind, my friend told me that he had given his son complete freedom to pursue his interests in life. He said, “The only thing I told him was to excel in whatever field he chose, and to be accountable for all his decisions in life”. Pretty good advice.

The second was that I read an article titled “Be humble but also be brave” by Mr. Ratan Tata. The article, which appeared in the Times of India on 27th December 2020, contains Mr. Tata’s views on what we as a nation need to do to improve our society. He writes about our collective responsibility towards the underprivileged sections of our society. He also writes about the importance of gender equality and equity in rewards given that women can (and will need to) play an important role in the nation’s growth. You may read the article here if you missed it earlier.

I agree with him on both counts. However, what resonated with me, even more, were his observations that India’s transformation will be powered by young people, and to enable this efficiently, we need to create a culture that is more supportive of innovation.

As I pondered the ways in which life has changed over the past nine months, it struck me that while technology has created “Digital” alternatives and workarounds, we as people have changed our mindsets too. This is in no small measure due to the pandemic. Being mistrustful of digital devices and ways of communication, many of us preferred to physically visit banks or shops. (Some will claim that they did so to maintain relationships- which is also a fair point). But while being forced to stay at home for several weeks, we discovered the freedom and convenience of banking and shopping from home. And now, this has become mainstream, thanks to the growing penetration of smartphones and hence, access to the internet.

I asked myself in what other areas do we need to change our mindsets and realized that change and shifts are inevitable in every walk of life. Here are five that immediately come to mind.

Parenting

At least in my generation (and earlier ones), the general paradigm was that “parents know what’s best for their children”. That may have been true during an era of relatively little change when things remained more or less the same for decades (say 1950-1990). But it is certainly not true anymore. So many career choices are coming up in the gig economy- but yet, many parents are even today fixated on Engineering, Medicine, MBA, Chartered Accountancy or Law. Maybe this explains why so many Indian executives are CEOs in global companies, but the number of innovations that have emerged from India and shaken up the world remains small. India has been an IT services powerhouse for more than two decades, but where are we with products? Zoho is perhaps one success, but there are not too many others I can think of. As parents, we need to be more encouraging of our children’s interests and allow them to pursue avenues that were once labelled as “offbeat”.

Education

Our education system has largely remained oriented towards rote learning and examinations. Marks and grades continue to be indicators of learning. But in a world where there are new problems crying out for new solutions, critical thinking skills become even more important. The new education policy alone is not adequate- all stakeholders including parents, teachers, society at large and students themselves need to change their mindsets. Risk-taking as a behavioural attribute has generally been suppressed in us right from a young age. “Don’t do this or you might hurt yourself” or “Don’t do that because it might damage the object” have been a part of our growing up years; we generously proffer the same advice to our children, and so the cycle continues.

This needs to change so that our youth are not afraid to take calculated risks. I am not advocating that they take wanton, senseless risks- but if they have a business idea, they should be encouraged to explore it and give it a shot- even when they are in say, middle school. They may fail, but their journey of pursuing their dreams will teach them so much more about life, success, failure, planning, preparation, resource management, handling people and so on than our institutions can. Just as only a tenth of an iceberg is visible above the water, 90% of failed start-up ventures remain invisible to the world. But the successful ones have ushered in so much transformation. Remember that only a few years ago, Uber, Zoom, Byju’s and Swiggy were all little more than ideas or early-stage start-ups.

Maybe the government needs to make it easier for new courses to be offered online, so that interested students, entrepreneurs, mid-career executives and professionals can expand their repository of skills- and in the process, also get awarded a certificate, diploma or even degree. The digital ecosystem is already a powerful catalyst for such a step. What is needed is a “nudge” in the form of reasonable regulatory unshackling to set up virtual universities, for example.

Innovation Ecosystem:

Depending on the idea and the problem it seeks to solve, the seed capital needed may vary from a few thousand to several lakhs. Not everyone will have access to the resources needed to set up a company and develop solution prototypes. But this does not mean these youngsters should not be given a fair opportunity. Some of the best ideas for solving our country’s problems come from young people.

The other day, I watched a video on the solar-powered ironing cart designed by Ms. Vinisha Umashankar, a fourteen year-old girl from Tamil Nadu. For a country like India, this is a great solution for three reasons. First, we have adequate sunlight throughout the year. Second, many people get their clothes ironed by people who use coal to heat their irons- and even this coal burning is a source of air pollution. Third, providing such services is a source of livelihood for many people in urban India. How she got thinking about this solution and how various entities got together to refine her prototype makes for interesting reading.

But not everyone will be as fortunate as young Vinisha, who seems to have had access to a supportive ecosystem through her school. To democratize access to resources, we need the government and the private sector to set aside more funds as “risk capital”. There are already several schemes at the central and state government levels, but awareness is limited. Teachers themselves do not have the necessary information to guide their students and help them apply for such funding. I am aware of executives who mentor and coach youngsters through NGOs and other social initiatives. I salute the people doing this and invite more people to volunteer.

For some years now, my colleagues and I have been assisting young entrepreneurs (on a pro bono basis) to give them advice and provide guidance on the legal aspects of setting up an entity in India, securing their IPR, etc. The Fox Mandal Foundation runs an early-stage incubation center in Bangalore. If you know of any start-ups looking for office space, legal assistance and mentorship, do ask them to contact me.

Regulatory Reforms

Entrepreneurs (and even established businesses, for that matter), spend inordinate amounts of time on seeking regulatory approvals and thereafter, on ongoing compliance. A certain amount of regulation is necessary- and in fact, desirable. But needless process delays (and instances of corruption) only cause frustration. For example, in today’s digital environment, it should be possible for company incorporation procedures to be completed within two business days. To be fair, the government has been taking steps to improve the “ease of doing business in India”. But more needs to be done- both by the central government and individual state governments.

Social Support

Not every startup idea will succeed. In fact, if history is anything to go by, 8 out of 10 will probably fail. This is where society at large has a role to play. Don’t chide or deride youngsters you know who have turned entrepreneurs and failed. If you have not done it yourself, you have no right to comment on others; at least they had the courage to take that risk. Perhaps this mindset should extend to parents preferring to give their children in marriage to those with “secure jobs”- which entrepreneurship is definitely not.

Unless we empower our youth to be bold and take calculated risks, we cannot expect India to transform at a pace that meets our aspirations. In this context, Gurudev Rabindranath Tagore’s famous lines, “Where the mind is without fear and the head is held high…”, take on a whole new meaning. We need our youth to be able to boldly take calculated risks and if they fail, move on to the next idea or do something different, without feeling like misfits, failures or under-achievers.

I wish you a happy new year!

Unless we empower our youth to be bold and take calculated risks, we cannot expect India to transform at a pace that meets our aspirations. In this context, Gurudev Rabindranath Tagore’s famous lines, “Where the mind is without fear and the head is held high…”, take on a whole new meaning. We need our youth to be able to boldly take calculated risks and if they fail, move on to the next idea or do something different, without feeling like misfits, failures or under-achievers.

Image Credits: Photo by Diana Parkhouse on Unsplash

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The Inevitability of “Digital” and What It Might Mean for Us

Here are five items of important news that hit the headlines in the past month:
  • Whatsapp’s decision to share certain types of user data with its parent (Facebook), and the consequent shift towards apps like Signal, Telegram and India’s home-grown “Arattai” from Zoho.
  • The Indian army displays of how a swarm of drones can be used to attack and neutralize enemies in future wars.
  • Tesla’s announcement on setting up an R&D Centre in Bangalore.
  • The launch of the Vaccine Credential Initiative brings together diverse technology and healthcare organizations such as Microsoft, Oracle, Salesforce, Mayo Clinic, Cerner etc., to collaboratively develop a “trustworthy, traceable, verifiable, and universally recognized digital record of vaccination status.”
  • Amazon’s plans to enter India’s buzzing online education market with the launch of the “Amazon Academy”, which will reportedly provide curated learning content and assessment material to students preparing for competitive entrance exams like the IIT JEE.

What’s common to the above seemingly random list? “Digital” is one common theme that connects each of the above items of news. This is perhaps not surprising because, in the last few years, it has become quite clear that the shift to “Digital” is a trend that is both inevitable and largely irreversible.

In this context, it is fair to say that the economic growth of various countries, including India, depends on how quickly, efficiently and effectively they embrace “Digital”. At one level, this means companies imagining and developing the right solutions to help various industry sectors “go Digital”. At another level, it also means individual companies across industry sectors are adopting such solutions to make their operations more efficient, connect better with customers, improve quality of service etc.

But the “Digital” world will also bring other substantial changes. A critical aspect is that it will need all of us to reimagine the important concept of “trust”. We will need to rebuild it in new ways with various members of our respective ecosystems. This is not just about data privacy or security; it extends to the choice of raw materials, the process of manufacturing (e.g., Manufacturing 4.0), management of supply chains, how we communicate (e.g., 5G), how products are marketed and indeed, how they will be used (and not allowed to be misused). Employer-employee relationships too will need to evolve in the context of “Digital”. New skills will be needed. In short, every aspect of business (and indeed, life) will need to be reconfigured.

In a digital world, how services are delivered also needs to change because there is not just greater interdependency, but at least in the initial years, there is also a higher degree of “unknowability” about how advice in one area might impact other areas. In today’s world, accounting, consulting, legal advice, financial advice, IT services, HR services, Governance solutions etc., are all neatly siloed. But in the brave new world that lies ahead of us, that may well need to change. We may need “super advisors” who have the ability to coordinate multiple strands of expertise to ensure that clients get the best solutions to address their needs. In many cases, even the needs will need to be elicited through a process of brainstorming because what “digital” means to a company cannot be easily defined or benchmarked.

Under the influence of various geopolitical forces, changing demographics and the consequent mindset shifts, the next few years may also see a realignment of global organizations. As and when this happens, we can also expect to see other changes, and those might also impact how the world moves forward on the “Digital” highway.

If you are older than, say, 45 years of age, you’ve likely grown up and worked through relatively long periods of stability. But in recent years, technology-enabled innovation has led to large-scale disruptions. Add to that the changing demographics, and it is fair to say that the world is on a roller-coaster. Generational shifts bring with them new ways of thinking and working and new attitudes towards life, including changing notions of “success”, “risk”, “happiness”, and so on. In this dynamic environment, some of us can be at the forefront of defining and shaping the future of industries. The simple question is: how many of us are up to the challenge?

What’s common to the above seemingly random list? “Digital” is one common theme that connects each of the above items of news. This is perhaps not surprising because, in the last few years, it has become quite clear that the shift to “Digital” is a trend that is both inevitable and largely irreversible.

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Occupational Safety, Health And Working Conditions Code, 2020

The Occupational Safety, Health and Working Conditions Code, 2020 (“OSHWC Code”) which consolidates the various legislations pertaining to working conditions of various types of industries was passed by the Lok Sabha on 22nd September 2020, the Rajya Sabha on 23rd September 2020 and received Presidential Assent on 28th September 2020

The amalgamated and consolidated legislations are:

 

  1. The Factories Act, 1948
  2. The Contract Labour (Regulation and Abolition) Act, 1970
  3. The Mines Act, 1952
  4. The Dock Workers (Safety, Health and Welfare) Act, 1986
  5. The Building & Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1979
  6. The Plantations Labour Act, 1951
  7. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
  8. The Working Journalist and other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955
  9. The Working Journalist (Fixation of rates of wages) Act, 1961
  10. The Cine Workers and Cinema Theatre Workers Act, 1961
  11. The Motor Transport Workers Act, 1961
  12. The Sales Promotion Employees (Conditions of Service) Act, 1976
  13. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966

 

Salient Features of the OSHWC Code

 

This section points out some of the key provisions in the OSHWC Code with a focus on the aspects which are different from applicable law.

 

  1. OSHWC Code has introduced a single registration for all establishments with 10 or more workers. Given that the OSHWC Code applies to a variety of different industries and types of establishments, the applicability for various sections varies accordingly as enumerated in the next point.

 

  1. The following are the amendments to thresholds which determine the applicability of relevant provisions of the OSHWC Code:
  • Factories with power – 10 to 20 workers
  • Factories without power – 20 to 40 workers
  • Contract Labour Section – 20 to 50 workers
  • Creche facility – 30 to 50 workers
  • Welfare Officer – 500 to 250 workers
  • Canteen – 250 to 100 workers

 

  1. Women can now work between 7 pm and 6 am in various establishments provided consent is obtained and safety measures are in place. Further, where previously prohibited, women are now allowed to work in all establishments including ones which are involved in hazardous activities.

 

  1. It has been made mandatory for all workers to have written terms of employment issued in an Appointment Letter.

 

  1. Free health needs to be provided by the employer annually for all workers over an age specified.

 

  1. Inter-state migrant workers to be provided for by employer/contractor, including statutory benefits. Further employers also have to cover travel fares for such workers as an allowance annually.

 

  1. Constitution of National Occupational Safety and Health Advisory Board to oversee and regulate safety norms, including requiring participatory/representative committees to be created to evaluate safety norms.

 

  1. Working hours, leave, overtime, welfare provisions have been made largely uniform across most Codes which makes the provisions uniform across most establishments.

 

  1. An employer is required to maintain a register which includes most of the following information: work performed by the employees, number of hours of work that constitute normal working hours in a day, weekly scheduled rest day, wages paid and receipts provided thereof, leave, leave with wages, overtime work, attendance, and dangerous occurrences and employment of adolescents.

 

  1. Government to formulate schemes for third party audit by professional experts.

 

OSHWC Code Implications

 

The OSHWC Code has certainly simplified the regulatory process. However, most of the aspects specifically needing regulations have been delegated to the State Government or the Board, so it needs to be seen what further legal provisions will likely be introduced in the rules.

Image Credits: Photo by Christopher Burns on Unsplash

The OSHWC Code has certainly simplified the regulatory process. However, most of the aspects specifically needing regulations have been delegated to the State Government or the Board, so it needs to be seen what further legal provisions will likely be introduced in the rules.

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Highlights Of The Code On Social Security

The Code on Social Security, 2020 (“SS Code”) was passed by the Lok Sabha on 22nd September 2020, the Rajya Sabha on 23rd September 2020 and received Presidential Assent on 28th September 2020.

The SS Code consolidates the various employee welfare legislation such as:

 

  1. The Employees Provident Fund and Miscellaneous Provisions Act, 1952 – this law provided for contributions by employer and employee towards post-retirement savings.

 

  1. The Employees State Insurance Act, 1948 – this law requires contributions from employers and employees towards insurance that covers medical, disability, and maternity.

 

  1. The Maternity Benefit Act,1961 – paid leave to employed women in the event of childbirth.

 

  1. The Payment of Gratuity Act, 1972 – statutory payment for long-service by an employee on non-stigmatic separation from employment.

 

  1. The Building and Other Construction Workers Cess Act – a fund for providing benefits to construction workers and their dependents.

 

  1. The Employees Exchange (Compulsory Notification of Vacancies) Act, 1959 – requires notification of job vacancies.

 

  1. The Cine Workers Welfare Fund Act, 1981 – the welfare of certain cine workers.

 

  1. The Unorganized Workers’ Social Security Act, 2008 – welfare measure for the unorganized sector including self-employed, work from home, and daily wage workers.

 

  1. Employees Compensation Act, 1923 – payment of compensation of injuries causing disablement/death arising in the course of employment.

 

Salient Features of the SS Code

 

This section points out some of the key provisions in the SS Code with a focus on the aspects which are different from applicable law.

 

  1. Applicability and Beneficiaries – The section on Provident Fund (PF) is applicable to all establishments with 20 or more employees as opposed to certain scheduled establishments. Employee State Insurance (ESI), Gratuity, and Maternity Benefit are applicable to all establishments with 10 or more employees & establishments carrying on hazardous activities. Building or other construction work now additionally excludes works employing less than 10 workers or residential construction work of up to INR 50 lakhs. Social security is also intended to be extended to the unorganized sector, gig, and platform workers. Also allows for voluntary adoption of the provisions where establishments do not meet the thresholds mentioned for PF and ESI.

 

  1. Wages DefinitionWages, which is being made uniform now, include all remuneration except for certain specific allowances such as conveyance, HRA, overtime, commission, bonus, and the consistent social security contributions and gratuity with a caveat that the excluded components cannot exceed 50% of the total salary paid. Any exclusions in excess of 50% shall be treated as wages. This concise definition of wages now removes the ambiguity in the earlier definition, especially in PF, on what components are required for purpose of calculating contributions. Employers will find this particularly welcome, in view of last year’s Supreme Court judgment which increased the PF contribution drastically by including the most regularly paid allowances for calculation purposes.

 

  1. PF Contribution – The employer and employee contribution have been reduced from 12% to 10%, with options for different percentages to be notified by the Central Government as and when it deems fit.

 

  1. Gratuity – While gratuity is still payable to all employees who have completed at least 5 years of continuous service with the company, the SS Code also allows for payment of gratuity on a pro-rata basis for fixed-term employees. Further, the threshold years for working journalists have been reduced to 3 years. Gratuity payments could increase if the basic salary amount in salary structures is not 50% of the gross salary.

 

  1. Authorities under the SS Code – The authorities under the SS Code are: Board of Trustees of Employee Provident Fund, Employees’ State Insurance Corporation, National Social Security Board for Unorganised Workers, State Unorganised Workers’ Social Security Board, and State Building Workers Welfare Boards.

 

  1. Creche Facilities – SS Code clarifies that common creche facilities may be opted for by establishments having 50 or more employees.

 

  1. Unorganized Sector, Gig and Platform Workers – The SS Code requires the National and State Social Security Boards to specifically create schemes/funds for providing benefits (life and disability cover, health and maternity benefits, old age protection, education, and discretionary benefits) to workers in the unorganized sector (self-employed or home-based), gig workers (workers outside the traditional employer-employee relationship) and platform workers (who access organisations or individuals through an online platform and provide services or solve specific problems). They are required to register themselves with self-declaration and AADHAR.

 

  1. Aggregators – The concept of ‘Aggregator’ has been introduced and means a ‘digital intermediary or a marketplace for a buyer or user of a service to connect with the seller or the service provider’. Aggregators are intended to help fund schemes for the unorganized sector, gig, and platform workers with a 1-2% contribution of their annual turnover. Identified Aggregators in the SS Code are:
  • Ridesharing services
  • Food and grocery delivery services
  • Logistic services
  • E-marketplace (both marketplace and inventory model) for wholesale/ retail sale of goods and/or services (B2B/B2C)
  • Professional services provider
  • Healthcare
  • Travel and hospitality
  • Content and media services
  • Any other goods and services provider platform

 

  1. PF Appeals – The deposit for filing an appeal has been reduced from 75% to 25% of the ordered amount.

 

  1. Penalties – Stricter penalties have been imposed, especially for repeat offenders. However, an opportunity is provided for rectification of non-compliance prior to initiation of any proceedings.

 

SS Code Implications

 

With regards to the Rules and Schemes developed, specific implementation will have to wait. However, the SS Code does appear to be a sincere attempt towards broadening the net and covering a much larger section of the workforce by recognizing unconventional work models as well as formal ones. While there could be an increased financial burden on employers, there is also an easing with respect to compliance requirements.

Image Credits:  Photo by sol on Unsplash

With regards to the Rules and Schemes developed, specific implementation will have to wait. However, the SS Code does appear to be a sincere attempt towards broadening the net and covering a much larger section of the workforce by recognizing unconventional work models as well as formal ones.

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Consolidation of Labour Laws - Balancing ease of Business with Employee Right

Over the last few years, there have been talks by the government to reform the existing labour laws, which are mostly archaic, to make them compatible with current issues and needs of the labour market. In the Union Budget 2019, the Government has pushed ahead with such reforms and proposed to streamline over 44 central laws and over 100 State laws pertaining to labour into 4 major Labour Codes, with the objective of increasing the ‘ease of doing business’ and ‘Make in India’ initiatives.

The government hopes that by standardizing definitions, registrations, and filings, there would be less conflict and fewer reasons for disputes.

The 4 Labour Codes passed by the Government in 2019 and more recently in September 2020 are as follows:

Labour Code

Passed in Lok Sabha

Passed in Rajya Sabha

Presidential Assent

Existing Laws Subsumed

Code of Wages 2019

30th July, 2019

2nd August, 2019

8th August, 2019

·  Payment of Wages Act, 1936

·  Minimum Wages Act, 1948

·  Payment of Bonus Act, 1965

·  Equal Remuneration Act, 1976

Industrial Relations Code 2020

22nd September, 2020

23rd September, 2020

28th September, 2020

·  Trade Unions Act, 1926

·  Industrial Employment (Standing Orders) Act, 1946

·  Industrial Disputes Act, 1947

Code on Social Security, 2020

22nd September, 2020

23rd September, 2020

28th September, 2020

·  The Employees Provident Fund and Miscellaneous Provisions Act, 1952

·  The Employees State Insurance Act, 1948

·  The Maternity Benefit Act,1961

·  The Payment of Gratuity Act, 1972

·  The Building and other Construction Workers Cess Act

·  The Employees Exchange (Compulsory Notification of Vacancies) Act, 1959

·  The Cine Workers Welfare Fund Act, 1981

·  The Unorganized Workers’ Social Security Act, 2008

·  Employees Compensation Act, 1923

Occupational Safety, Health and Working Conditions Code, 2020

22nd September, 2020

23rd September, 2020

28th September, 2020

·  The Factories Act, 1948

·  The Contract Labour (Regulation and Abolition) Act, 1970

·  The Mines Act, 1952

·  The Dock Workers (Safety, Health and Welfare) Act, 1986

·  The Building & Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1979

·  The Plantations Labour Act, 1951

·  The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

·  The Working Journalist and other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955

·  The Working Journalist (Fixation of rates of wages) Act, 1961

·  The Cine Workers and Cinema Theatre Workers Act, 1961

·  The Motor Transport Workers Act, 1961

·  The Sales Promotion Employees (Conditions of Service) Act, 1976

·  The Beedi and Cigar Workers (Conditions of Employment) Act, 1966

Brief Overview of the Labour Codes

All the Labour Codes have been aimed at broadening the scope of coverage, rights, and protections, reducing multiplicity in definitions, authorities, and compliances, and embracing more digitization in registrations/compliances. However, at the same time, the Labour Codes is largely a consolidation of existing laws rather than a significant overhaul of them, with there not being substantial changes in the position of law itself.

Code of Wages, 2019 – The Code of Wages largely covers the various aspects of wages payable to employees. The most significant aspect of the Code of Wages is a uniform definition of wages which has also been adopted across the other Labour Codes. The Code of Wages is applicable to all establishments regardless of industry, another move away from the existing position where it was limited to certain types of employment or classes of employees.

Industrial Relations Code, 2020 – The Industrial Relations Code is the Code that governs employer-employee relationships including collective bargaining, labor disputes, separation from employment and employment terms. This Code in particular has received a lot of flak from the workmen and trade unions in India, their belief being that they have been stripped of their rights and that the Code heavily favours the employer. These negative views are on account of the threshold for applicability of certified standing orders and the requirement for permission to fire employees (in certain industries) being increased greatly as well as their right to go on strike without notice being curtailed. However, the majority of rights and protections have actually been retained for employees and in fact, the coverage has broadened on account of certain definition changes. It also encourages more industries to expand operations since the law is not as onerous in some respects as before.

Code on Social Security, 2020 – Code on Social Security is intended to create a comprehensive social security system to provide retirement, health, old-age, disability, unemployment and maternity benefits to a vast majority of the population. Provident fund coverage has expanded to all establishments meeting the employee threshold. Unorganized sector, gig and platform workers have been brought in as beneficiaries under the schemes and the concept of aggregators has been included for funding of some benefit schemes. This Code has certainly been beneficial to a number of classes of employees but may prove to be a greater financial burden on employers.

Occupational Safety, Health, and Working Conditions Code, 2020 – This law has been codified in a single regulatory framework, the various laws applicable to factories, mines, plantations, contract labor and construction establishments. There has been a huge simplification of the regulatory framework, with the commonality of definitions, maintenance of registers and records, and health and safety measures. The threshold aspects have also changed in most cases, some increasing the threshold thus excluding more establishments from compliance and reducing in some cases offering welfare measures to more people.

Impact of the Labour Codes

As stated earlier, the laws in itself have not truly been significantly reformed by the Labour Codes and anyone reading the same will likely find the content quite familiar to the present situation. While many workmen and trade unions feel that the Labour Codes have curtailed their rights, it may be seen as the law finally catching up with modern times and encouraging more cooperation between parties as opposed to one-sided legal force, especially in terms of work responsibilities. The Labour Codes still offer a great deal of protection to employees and the benefits largely tilt in the employees’ favour. From a business standpoint, with the reduction in multiplicity of definitions and duplicate compliance requirements, as well as more freedom for digitization, employers will find it easier to set up or even expand their business without necessarily worrying that the labour law implications would be a huge hindrance.

Please watch out for this space as this is the first in the series of comments on the labour law amendments to be followed in further blogs in detail on each of the new codes.

Image Credits:  Photo by Your Photo Trips from Pexels

The laws in themselves have not truly been significantly reformed by the Labour Codes and anyone reading the same will likely find the content quite familiar to the present situation. While many workmen and trade unions feel that the Labour Codes have curtailed their rights, it may be seen as the law finally catching up with modern times and encouraging more cooperation between parties as opposed to one-sided legal force, especially in terms of work responsibilities

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A New Era of Labour Laws Beginning With The Code of Wages, 2019

 

Over the last few years, there have been talks by the government to reform the existing labour laws, which are mostly archaic, to make them compatible with current issues and needs of the labour market. In the Union Budget 2019, the Government has pushed ahead with such reforms and proposed to streamline over 44 central laws and over 100 State laws pertaining to labour into 4 major Labour Codes, with the objective of increasing the ‘ease of doing business’ and ‘Make in India’ initiatives. The Government hopes that by standardizing definitions, registrations, and filings, there would be less conflict and fewer reasons for disputes.

The proposed Labour Codes are as follows:

 

  1. Code of Wages – The Code of Wages is set to combine and subsume the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

 

  1. Code of Industrial Relations – The Code of Industrial Relations seeks to replace the Industrial Disputes Act, 1947, the Trade Unions Act, 1926 and the Industrial Employment (Standing Orders) Act, 1946.

 

  1. Labour Code on Social Security – Labour Code on Social Security is intended to create a comprehensive social security system to provide retirement, health, old-age, disability, unemployment and maternity benefits to a vast majority of the population.

 

  1. Small Factories (Regulation of Employment and Conditions of Services) Bill – This Bill had initially been proposed to exempt small factories with less than 40 employees from the applicability of 14 labour legislations. However, this bill is most likely to be shelved on account of issues pertaining to rights of employees.

 

Further, the Government has allocated INR 11,184.09 crores to the Ministry of Labour and Employment which is a significant boost in comparison to the average budget allocation to the Ministry over the past 5 years.

 

Code of Wages, 2019

 

The first in the series of Codes to be approved by the Parliament is the Code of Wages, 2019[i] (“Code of Wages”). The Code of Wages (initially proposed in 2015), which amalgamates and subsumes 4 major legislations, namely the Payment of Wages Act, 1936[ii], the Minimum Wages Act, 1948[iii], the Payment of Bonus Act, 1965[iv] and the Equal Remuneration Act, 1976[v], was passed by the Lok Sabha on 30th July, 2019 and the Rajya Sabha on 2nd August, 2019 and has received the President’s assent on 8th August, 2019 and published in the Official Gazette for general information.

 

The Code of Wages, while not changing the provisions of the law themselves substantially has certainly reduced the ambiguity and multiplicity of definitions and compliances as well as broadened the scope of the beneficiaries under the existing laws thus providing benefits to around 50 crore employees. The Code comprises 9 chapters, with minimum wages, payment of wages, equal remuneration and bonus being covered under different chapters.

 

 

 

Salient Features of the Code of Wages

 

This section points out some of the key provisions in the Code of Wages which are different from the existing laws or a welcome clarification of the same.

 

  1. Applicability and Beneficiaries – The Code of Wages is applicable to all establishments regardless of industry. Further, all employees are eligible to be paid minimum wages and paid salary in a timely fashion. This is a vast difference from the existing law, where Minimum Wages Act, 1948 was applicable to only scheduled employments which were approximately 1750 in number and Payment of Wages Act, 1936 which was applicable only to those employees earning INR 24,000 or less per month.

 

  1. Uniform Definition of Wages – One of the most vexing aspects for employers over the years has been the multitude, 12 at present, of definitions for the term ‘wages’. This has led to difficulty in the setting of salary structures as well as determining various payments, contributions and deductions to be made. The current definition of wages provides more clarity on inclusions and exclusions specifically with respect to allowances. Wages now include all remuneration except for certain specific allowances such as conveyance, HRA, overtime, commission, bonus and the consistent social security contributions and gratuity. This definition makes the long paid special allowance a part of wages. Further, the Code of Wages also mandates that the excluded components cannot exceed 50% of the total salary paid. Any exclusions in excess of 50% shall be treated as wages. It will be interesting to see whether this definition remains consistent under the other proposed Labour Codes.

 

  1. Distinction between ‘Employee’ and ‘Worker’ – The Code of Wages makes a distinction between ‘Employee’ and ‘Worker’ with the definition of Employee covering all persons employed, except for apprentices, while ‘Worker’ is defined as similar to the existing ‘workman’ under the Industrial Disputes Act, 1947. Worker is essentially all employees except for those employees in a managerial or administrative capacity or employees in a supervisory capacity earning more than INR 15,000 a month. The Code of Wages references ‘Worker’ mostly in the context of minimum wages.

 

Although the definition encompasses all kinds of workers across industry sectors, uncertainties still remain regarding whether the Code would bring within its purview people working in gig-economy, where there is no fixed place of employment and flexible timings. The apex court has held, in Officer-In-Charge, Sub-Regional Provident Fund Office v Godavari Garments (2019)[vi], that women who worked from home doing piece work would be considered “employees” of the company which had engaged them to do so, for the purposes of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), even if there was no direct contract of employment between the two. If the same is applied to the Code, it would definitely lead to uncertainties regarding the applicability of provisions in accordance with the nature of the job and lead to unnecessary litigations.

 

  1. Determining Minimum Wages – As it was under the existing laws, both the Central Government and the State Governments have the right to set the applicable minimum wages for central and state establishments.

 

  • The Code of Wages proposes for the Central Government to set a national minimum wage or floor wage, which may change based on regions. Any State Governments fixing their minimum wages shall ensure that the wages are equal to or greater than the floor wage. This would bring some uniformity in the minimum wages across the country and would make all states almost equally attractive from the point of view of labour cost for investment as well as reduce distress migration. However, the floor wage concept might diminish the minimum wage as it only states the lowest possible end of the spectrum and some states might opt to stick to it.

 

  • State Governments while determining the minimum wages shall use only 2 factors – (a) skill level of the employees, namely unskilled, semi-skilled, skilled or highly skilled, and (b) the geographical location. In addition, the arduousness or the danger level of the work may also be considered for the setting of minimum wages.

 

  • The Code of Wages mandates that the minimum wages be revised once every 5 years.

 

  • The Code does not provide any formula for fixation of minimum wages. For calculation of minimum wages, the 15th Indian Labour Conference (ILC) had adopted per capita food intake of at least 2,700 calories for a worker’s family comprising three units (2 adults and 2 children) for the calculation of minimum wages which has also been approved by the Supreme Court. A similar formula would have found more acceptability.

 

  1. Digitization – Payment through electronic and digital means have been introduced as a valid payment mode under the Code of Wages.

 

  1. Overtime – Overtime is fixed at twice the daily rate of wages for any work beyond the prescribed hours. This is similar to the position under various State laws. However, there is no provision for any compensatory off.

 

  1. Appellate Authority – Code of Wages provides for an appellate authority between the claims’ authority and judicial forums for speedier dispute resolution.

 

  1. Inspections – An Inspector-cum-Facilitator shall be appointed by the appropriate governments and the Code of Wages allows for a more structured inspection scheme which shall also include web-based inspections and request for information / documents through electronic means.

 

  1. Documentation – The Code of Wages requires employers to maintain a register containing the details of the persons employed, muster roll, wages and other prescribed information. Employers are also required to display a notice containing the abstract of the Code of Wages, wage rates, wage period, payment dates/days and contact details of the jurisdictional Inspector cum Facilitator.

 

  1. Penalties – Under the previous law the penalties for non-compliance were quite paltry and further was uniform regardless of the offence. The Code of Wages has imposed greater penalties as well as proportioned the said penalties pertaining to the degree of non-compliance. The Code of Wages prescribes the following penalties:

 

  • A maximum fine of INR 50,000 for non-payment of any applicable amounts. Simple Imprisonment of up to 3 months and a maximum fine of INR 1,00,000 for subsequent offences committed within a span of 5 years.

 

  • A maximum fine of INR 20,000 for other non-compliances. Simple Imprisonment of up to 1 month and a maximum fine of INR 40,000 for subsequent offences committed within a span of 5 years.

 

  • A maximum fine of INR 10,000 for incorrect maintenance of records.

 

Companies are also to be given an opportunity to rectify any non-compliances before prosecution at the discretion of the Inspector-cum-Facilitator. There is also an option for compounding of offences in the first instance.

 

  1. Limitation Period – The limitation period for claims by workers has been increased to 3 years, thus offering workers more time to exercise their statutory rights.

 

  1. Discrimination – While the Equal Remuneration Act, 1976, prohibited discrimination in wages, recruitment, promotion, training, and transfer for workers performing the same work and required the constitution of a board to promote employment opportunities for women, the Code of Wages prohibits gender-based discrimination only in terms of wages and recruitment. However, the gender-neutral approach has broadened the scope to a certain extent.

 

  1. Bonus – The Payment of Bonus Act, 1965 was applicable only to workers earning wages up to INR 21,000 per month. However, this statutory threshold has not been incorporated in the Wages Code, leaving it up to the discretion of the appropriate government to prescribe the wage ceiling for eligibility of payment of bonus. Further, conviction for sexual harassment has been added as a ground for disqualification from payment of bonus.

 

Most other provisions are the same as under existing laws.

 

Implications of the Code of Wages

 

As stated earlier, the substantive law itself has not seen much amendment under the Code of Wages and for the most part, companies will not see a vast difference in the actual provisions. The Code of Wages is mostly a consolidation of existing laws rather than a true reform of labour laws. However, it is a huge boon in terms of removing the multiplicity of definitions as well as authorities which would improve the ease of compliance and maintenance of records and filings.

 

Further, one of greatest advantages of the Code of Wages is that the benefits contemplated under the legislation is now available to a much larger portion of the workforce with very few categories of employees excluded from the scope. The introduction of a national minimum wage may also help reduce differences between States and skillsets and provide a basic standard of living for all employees across the country.

 

The lack of change in substantive law may be seen as a lost opportunity since the legislature has not truly taken the effort to analyse the need to retain archaic provisions.

 

Specific rules and notifications under the Code of Wages are also awaited before more insight can be gathered on whether the codification will actually improve the ease of compliance and doing business.

The substantive law itself has not seen much amendment under the Code of Wages and for the most part, companies will not see a vast difference in the actual provisions. The Code of Wages is mostly a consolidation of existing laws rather than a true reform of labour laws. However, it is a huge boon in terms of removing the multiplicity of definitions as well as authorities which would improve the ease of compliance and maintenance of records and filings.

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Impact of Supreme Court ruling pertaining to calculation of Provident Fund contribution on Allowances

The Hon’ble Supreme Court, in a recent judgement, answered the question of whether “special allowances” would fall within the expression “basic wages” for Provident Fund (PF) contribution in the affirmative. Interpreting the provisions of Employees Provident Funds and Miscellaneous Provisions Act, 1952 (“PF Act”) as a beneficial social welfare legislation, the Court affirmed the PF authorities’ factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution to the provident fund account of the employees.

In essence, the Court reiterated the principle laid down in prior rulings that where the wage is universally, necessarily and ordinarily paid to all across the board, such emoluments are basic wages and employers had to expressly prove the special treatment in the special allowance for it to be kept out of the purview of calculations for PF purposes.

 

Background

The PF Act is a social security legislation enacted to help ensure that both employees and employers contributed towards a superannuation fund for the purpose of retirement benefits. Per the PF Act, all employees are required to contribute 12% of their basic wages, dearness allowance, cash value of any food concession and retaining allowance, if any with the employer contributing a matching 12%.

 

Basic Wages under Section 2(b)(ii) read with Section 6 of the PF Act is defined as “all emoluments which are earned by an employee while on duty or [on leave or on holidays with wages in either case] in accordance with the terms of employment and which are paid or payable in cash to him, but does not include:

  • the cash value of any food concession;
  • any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowances payable to the employee in respect of his employment or of work done in such employment;
  • any presents made by the employer.

The phrase “or any other similar allowance” has not specifically been defined in the PF Act or related schemes and has thus been a subject of litigation for several decades. Over the year, companies have been structuring the salary paid to employees to include various allowances, including special allowance. However, in all instances per the understanding of the PF Act, employers have only been paying contribution on Basic Salary, Dearness Allowance and Retaining Allowance or such equivalent components. The PF authorities have usually contended that ‘special allowances’ should be included for the purpose of calculation of contribution. The Hight Courts in India have taken varying views on the subject matter pertaining to contribution on allowances which had resulted in various appeals pending before the Supreme Court of India.

 

Supreme Court Decision on 28th February, 2019[1]

Various appeals[2] were preferred before the Supreme Court questioning whether various types of allowances such as special allowance, travel allowance, HRA, food allowance, etc. were to be construed as ‘basic wages’ for the purpose of calculation of contribution. The petitioners/employers had used the argument that the term ‘basic wages’ had certain specific exceptions and only such payment that had been earned by the employee in accordance with the terms of the employment was to be included for calculation of provident fund. The PF authorities, on the other hand used the principle of ‘universality’, stating that only incentive payments linked to output could be excluded from the calculation of provident fund.

 

The Hon’ble Supreme Court dismissed the appeals by the employers (except the appeal by the RPFC in the Vivekananda Vidyamandir case) and concluded, relying on the principle of universality, that all payments which were made to all employees or categories/classes of employees without discrimination and which are not specifically ‘variable’ in nature and fact or linked to certain incentive for greater output, would be construed as ‘basic wages’ and thus provident fund contribution was to be made on them. For an amount to be construed as variable in nature it would need to be demonstrated that the said amounts were payable on account of employees contributing beyond any normal work that would usually be expected of them; or that it would be payable to employees only if they availed certain opportunities.

 

The Supreme Court relied on some of its previous decisions for its conclusions, namely:

  • Whatever is payable by all concerns or earned by all permanent employees had to be included in basic wage for the purpose of deduction under Section 6 of the Act. It is only such allowances not payable by all concerns or may not be earned by all employees of the concern, that would stand excluded from deduction.[3]
  • Any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term ‘basic wages’.[4]
  • Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages. Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. Conversely, any payment by way of a special incentive or work is not basic wages.[5]
  • That the Act was a piece of beneficial social welfare legislation and must be interpreted as such.”[6]

Impact of Supreme Court Decision

The principles laid out by the Supreme Court, although not new, are a welcome clarification on the position of allowances with respect to the calculation of provident fund contribution. From an employee perspective, employees’ net take home salary is also likely to be impacted by the decision.

 

However, the possibility of the decision having a retrospective effect might exasperate employers. This is on account of the fact that the judgement interprets an existing provision in the law and does not create any new provisions. The retrospective effect may require employer to cover the shortfall in contribution for the past year but additionally pay interest and damages as well.

 

It may also be noted that the Supreme Court decision to include allowances as part of basic wages has primary financial implications in connection to those domestic employees whose salary (on which PF contributions were being paid i.e. basic salary and dearness allowance) is less than INR 15,000 per month, as well as all international workers.

 

Employers are advised to revisit their policies and salary structures and start ensuring that all components of salary which are not discretionary or variable in nature are included for the purpose of PF contributions. Employers are also recommended to conduct audits to ascertain potential past non-compliances / shortfalls in contributions.

 

The matter is also currently sub judice with the management of Surya Roshni Ltd. having filed a review petition before the Supreme Court. It also remains to be seen if the EPFO would take a more lenient stance and allow employers to rectify past non-compliances without incurring the additional cost of interest and damages.

 

References:

[1] In connection with Civil Appeal no. 6221/2011, 3965-66/2013, 3969-70/2013, 3967-68/2013 and Transfer Case no. 19/2019 (arising out of TP(C) no. 1273/2013)

[2] Appeals considered jointly: (i) The Regional Provident Fund Commissioner (“RPFC”), West Bengal v/s Vivekananda Vidyamandir and Others (Kolkata High Court); (ii) Surya Roshni Ltd. vs. Employees Provident Fund and others (Madhya Pradesh High Court); (iii) U-Flex Ltd v/s EPF and another; (iv) Montage Enterprises Pvt. Ltd. v/s EPF and another (Madhya Pradesh High Court); (v) The Management of Saint-Gobain Glass India Limited v/s The RPFC, EPFO (Madras High Court).

[3] (i) Bridge and Roof Co. (India) Ltd. vs. Union of India, (1963) 3 SCR 978

[4] Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, AIR 1960 SC 985

[5] Manipal Academy of Higher Education vs. Provident Fund Commissioner, (2008) 5 SCC 428

[6] The Daily Partap vs. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh, (1998) 8 SCC 90

Image Credits: Image by Shutterbug75 from Pixabay 

Employers are advised to revisit their policies and salary structures and start ensuring that all components of salary which are not discretionary or variable in nature are included for the purpose of PF contributions. Employers are also recommended to conduct audits to ascertain potential past non-compliances / shortfalls in contributions.

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Government To Subsidize Extended Maternity Benefits Available To Women Employees

Maternity Benefit (Amendment) Act, 2017 

India’s economic growth in the last three decades has not seen a parity in terms of workforce participation. Essentially, India has one of the lowest labour force participation rates (LFPR) for urban women – one that has stayed consistently below 25 percent, and in some states below 15 percent. Having a young child in the home depresses mothers’ employment, an inverse relationship that has intensified over time. Therefore, motherhood places a “penalty” on almost all female workers, unless formal or informal institutions step in to share care responsibilities with women or female wages are high enough to compensate for the monetary and non-monetary costs of childcare.i  

 

In 2017, by way of the Maternity Benefit (Amendment) Act, 2017 (“Act”), the Government brought in some drastic and welcome changes in the policies regarding the benefits to be bestowed upon women expecting to be mothers. Effective 1st April, 2017, all women who had worked in an organization for at least 80 days prior to the expected date of delivery were entitled to 26 weeks of maternity leave (an upgrade from the existing 12 weeks) provided they had less than 2 surviving children. For women with 2 or more surviving children the paid maternity leave entitlement would remain 12 weeks. Additionally, 12 weeks of paid maternity leave were also to be granted to women either adopting babies under 3 months old or opting to conceive children, through surrogacy. The Act also mandated employers to provided crèche facilities in the premises if the employee strength was above 50 and encourage work from home wherever possible. 

 

Effect of Amendments 

 

The amendments were a boon to close to 2 million women in the organized sector. However, in practice, the said amendments and extended leave provisions in fact led to the decline in hiring of women on account of the increased financial burden on the employer. The amendment was especially burdensome for start-ups and small and medium enterprises (SMEs). A survey conducted by a citizen’s forum, LocalCircles, that included 9000 early stage startups and small businesses showed 46 percent of the respondents had mostly hired male employees in the 18 months following the amendment.ii Moreover, there have been instances of women being asked to leave employment or being retrenched on unsubstantiated grounds. Overall there has been a considerable decline in the employment of women in the organized sector on account of the new provisions pertaining to maternity leave. 

 

Proposals by Government 

 

With a view to reverse the decline in employment of women and to encourage employers to retain women employees despite the extended maternity leave entitlement, the Ministry of Labour in November 2018 proposed to subsidize 50 percent of the extended maternity leave entitlement; i.e. 7 weeks of the extended 14 weeks. This subsidy would be available for women falling within the salary bracket of INR 15,000 or less per month. The proposed scheme is expected to cost the Government approximately INR 400 crores per year and is likely to be taken from the corpus of the Labour Welfare Cess Fund. However, despite the government proposal to pay 7 weeks of maternity benefit leave, survey shows that 65 percent of startups and SMEs still find 19 weeks of business paid leave too much to cover and 42 percent of startups and SMEs say they still won’t hire female employees.iii 

 

A short while back, the Government has proposed to further subsidize the extended maternity leave benefit by extending the subsidy to cover the entire extended maternity leave of 14 weeks. Further it has also been proposed to do away with the salary cap of INR 15,000 per month in order to bring a greater part of the women workforce into the fold. Subsidizing the entire extended leave is likely to add another INR 400 crore annually to the Government’s cost. The Government is also contemplating amending the law either to require the employers of the father of the child (who may be employed with other organizations) to contribute towards the maternity leave benefit payable to a woman or to provide for the concept of paid paternity leave or parental leave (where both parents have the right to paid leave over a certain period as is prevalent in European countries) as opposed to just maternity leave. 

 

The proposals are in the process of being approved by the finance ministry and if approved may go a long way towards battling discrimination against women on account of maternity leave and benefits. The state, employers as well as the society needs to weave a net of support to enable increased participation of women in the work force. Unless that happens, the efforts made towards education and skill of women would not reach the desired objective. 

 

Image Credits: Jenna Christina, Unsplash

With a view to reverse the decline in employment of women and to encourage employers to retain women employees despite the extended maternity leave entitlement

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