EPFO/ESIC Tax Liability & Returns
Punit Bhandari
Punit Bhandari, is a Qualified Chartered Accountant-
Senior Partner, M/s Bhatia Bhandari Associates
His Expertise: Taxation, Audits, SAP Implementation & Non-Resident Investment Solutions
Introduction
EPFO (Employees’ Provident Fund Organisation):
The Employees’ Provident Fund Organisation (EPFO), under the Ministry of Labour and Employment, India, administers the EPF, EPS, and EDLI schemes, promoting social security by helping employees save part of their wages for retirement, emergencies, and long-term needs.
ESIC (the Employees’ State Insurance Corporation):
ESIC is a government organization that provides social security and health insurance to employees earning up to a specified income level. It includes medical care, sickness and maternity benefits, and compensation for work-related accidents or disabilities. ESIC ensures that employees and their families receive financial and healthcare assistance in times of need.
Tax Liability Under EPFO and ESIC:
1. EPFO Tax Liability: Employee Contribution: Employees contribute 12% of their basic salary + DA to EPF. This amount is deducted from their salary.
Employers contribute 12% of Basic + DA, which is distributed as follows:
a. 67% for EPF.
b. 33% for EPS (Pension Scheme).
c. 5% for EDLI (Life Insurance).
d. 5% for EPF administrative charges.
Tax treatment: Employee Contribution: Up to ₹1.5 lakh in tax deductions are available under Section 80C.
a. Employer contributions up to 12% of salary are tax-free. The surplus is subject to perquisite taxation if it is over 12%.
b. Interest: Up to 9.5% annually is tax-free. Overdue interest is subject to taxes.
c. Withdrawal: Taxed if made before five years of service (with TDS); fully tax-free if made beyond that time.
2. ESIC Tax Liability:
a. Employee Contribution: If an employee’s gross salary is less than ₹21,000 per month, they must contribute 0.75% of their gross wage.
b. Employer Contribution: Employers contribute 3.25% of the gross salary.
Tax Treatment – Employee Contribution: Not eligible for any income tax deduction, but deducted from salary.
a. Not taxable in the hands of the employee, but treated as a business expense for the corporation (permitted under the P&L Account).
b. Benefits received: Employees receive tax-free reimbursements or medical benefits under ESIC.
Returns:
EPFO: To guarantee that contributions are deposited accurately and that employee data are kept up to date, EPFO mandates that businesses submit returns regularly.
a. Employers must submit an Electronic Challan-cum-Return (ECR) on the EPFO portal each month.
b. This includes wages, contributions (12% each from the employee and employer), and other relevant information.
c. The 15th of the subsequent month is the due date.
d. The goal is to guarantee that employee PF and pension accounts receive the correct credit.
ESIC: To guarantee that workers receive insurance and medical benefits, ESIC (Employees’ State Insurance Corporation) requires that contribution information be filed.
1. Monthly Contribution Payment: Through the ESIC site, employers make monthly ESIC contributions (3.25% employer + 0.75% employee).
2. Due Date: The 15th of each subsequent month.
Half-Yearly Returns (Return of Contribution, or RC):
- Submitted twice a year, from October to March and from April to September. It includes total contributions paid, along with the respective salaries of each employee.
- Verifies eligibility for ESIC benefits and correct reimbursement.
- Goal: Assists workers in receiving free medical care, maternity, accident, and sickness benefits under the ESIC program.
Applicability of ESIC and EPF to Companies:
ESIC and EPF cover a wide range of organizations, including:
- Companies in both the government and non-government sectors must comply if employee thresholds are satisfied.
- Manufacturing, Wholesalers, Retailers, and Small Businesses: All these types, whether organized as sole proprietorships, private limited companies, HUFs, or other structures, must comply if they reach the employee threshold.
- Company types: Applicability includes proprietorships, partnerships, One Person Companies (OPCs), Private or Public Limited Companies, and Hindu Undivided Family (HUF) companies.
Minimum Number of Employees Required:
Scheme | Minimum Employees for Compulsory Registration | Salary Threshold for Covered Employees |
ESIC | 10 or more (in some states, this is 20) | ≤ ₹21,000/month (₹25,000/month for disabled employees) |
EPF | 20 or more | ≤ ₹15,000/month (compulsory enrolment) |
ESIC is mandatory for all industries and specified establishments with ten or more employees. Certain sorts of establishments (in some states) may have a minimum of 20 employees. Employees earning more than ₹21,000/month are exempt from contribution; however, the organization must register if the level is exceeded.
EPF: Consider clarifying with: Any establishment (such as a factory or shop) employing 20 or more individuals must register under EPF regulations. Voluntary coverage is available for establishments with fewer employees; once opted in, all provisions become mandatory.
Applicability by Type of Company/Organization:
Compliance is required for both government and non-government organizations if certain thresholds are fulfilled.
Proprietorship/Private Ltd./Partnership/OPC/HUF: All are covered by EPF/ESIC if their workforce exceeds the mandated numbers. Even if the first employee count falls below the threshold, ESIC registration is required at the time of company establishment using the AGILE PRO form. Compliance (filing returns/contributions) is only required when the threshold is exceeded.
Examples:
EPF Example: A retailer with 22 workers, the majority of whom make ₹14,000 a month, is required to sign up for EPF and deduct 12% of employer and employee contributions.
A private limited manufacturing company with eight workers is eligible for voluntary registration. Registration and compliance are required if they employ more than 20 people.
ESIC Example: To begin compliance, a wholesaler with 13 employees making less than ₹21,000 per month needs to register with ESIC. A shop run by a sole proprietor with seven employees must register at incorporation; however, filing and contributions are only required once the 10-employee threshold is reached.
Business Type | ESIC Applicability | EPF Applicability |
Proprietorship | ≥10 employees | ≥20 employees |
Partnership | ≥10 employees | ≥20 employees |
Pvt Ltd/Public Ltd/OPC | Registration at incorporation, compliance at 10 employees | ≥20 employees |
Manufacturing Unit | ≥10 employees (factory) | ≥20 employees |
Shop/Retail/Wholesale | ≥10 employees (may be 20 by state) | ≥20 employees |
Government/NGO | Same as above | Same as above |
Conclusion:
EPFO and ESIC are social security schemes in India that provide financial and medical benefits to employees. EPFO provides retirement savings through required contributions for employees earning up to ₹15,000 basic wage. ESIC provides medical benefits to employees earning up to ₹21,000 gross income. Both systems aim to ensure employees’ financial and healthcare stability.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
Disclaimer
The content published on this blog is for informational purposes only. The opinions expressed here are solely those of the respective authors and do not necessarily reflect the views of Fintrac Advisors. No warranties are made regarding this information’s completeness, reliability, or accuracy. Any actions taken based on the information presented in this blog are solely at the reader’s risk, and we will not be liable for any losses or damages resulting from its use. It is recommended that professional expertise be sought for such matters. External links on this blog may direct users to third-party sites beyond our control. We do not take responsibility for their nature, content, or availability.
