Question 1

When does EPF and ESIC registration become legally mandatory for a company?

Accepted Answer

EPFO registration is mandatory once an organization employs 20 or more persons. ESIC registration is mandatory once an establishment employs 10 or more employees (in most states) earning gross monthly wages up to ₹21,000. However, voluntary registration is allowed and encouraged even with 1 employee.

Question 2

Can founders draw salary from a Private Limited Company?

Accepted Answer

Yes. Director remuneration is 100% tax-deductible as a business expense for the company under Section 36(1)(ii), reducing the company's taxable profit. It is subject to Section 192 TDS deduction like normal employee salary.

Question 3

What is the consequence of deducting PF from an employee's salary but depositing late?

Accepted Answer

Under Section 36(1)(va) of the Income Tax Act, any employee contribution to PF/ESI deposited after the statutory due date (15th of the month) is permanently DISALLOWED as a business expense, resulting in additional corporate tax liability!

Question 4

What is the statutory wage ceiling of ₹15,000 under the Employees' Provident Funds Act?

Accepted Answer

Under EPFO statutory guidelines, mandatory EPF contribution is calculated on a statutory wage ceiling of ₹15,000 per month (Basic + DA). For employees earning > ₹15,000/month, the employer can either cap the monthly PF deduction at ₹1,800 (12% of ₹15,000) or contribute 12% on actual higher basic pay by joint declaration.

Question 5

What is the tax incentive under Section 80JJAA for hiring new regular employees?

Accepted Answer

Section 80JJAA of the Income Tax Act provides an extraordinary corporate tax deduction: an employer subject to tax audit can claim a deduction of 30% of additional employee cost incurred for newly hired regular employees (earning up to ₹25,000/month) for 3 consecutive assessment years! This yields up to a 90% cumulative deduction over 3 years.

Question 6

How is TDS on salary calculated under Section 192 (New vs Old regime)?

Accepted Answer

Employers must compute average income tax payable on estimated annual salary for each employee. Under Section 192, employees can declare their preferred regime (New vs Old) at the start of the financial year. The employer must factor in standard deductions, house rent allowances, and Section 80C deductions (for Old Regime) and deduct 1/12th of net tax each month.

Question 7

What is Professional Tax (PT) and how is it remitted?

Accepted Answer

Professional Tax is a state-level direct tax levied on salaried employees and professionals (governed by state statutes in states like Maharashtra, Karnataka, Tamil Nadu, Telangana, West Bengal, and Gujarat). The maximum statutory limit is capped at ₹2,500 per employee per year by Article 276 of the Constitution, deducted monthly by the employer.

Question 8

What is the difference between EPF and EPS (Employees' Pension Scheme)?

Accepted Answer

Out of the employer's 12% contribution: 8.33% (capped at ₹1,250/month based on the ₹15,000 wage ceiling) is diverted to the Employees' Pension Scheme (EPS) to fund post-retirement lifelong pension, while the remaining 3.67% goes into the employee's EPF account alongside the full 12% employee contribution.

Question 9

Is employer contribution to National Pension System (NPS) tax-deductible under Section 80CCD(2)?

Accepted Answer

Yes! Section 80CCD(2) allows employers to contribute up to 14% of salary (Basic + DA) to the employee's NPS Tier-1 account. This contribution is 100% tax-deductible as a business expense for the employer, while remaining completely tax-free in the hands of the employee (up to ₹7.5 Lakhs combined limit across PF, Superannuation, and NPS).

Question 10

When is Form 16 Part A and Part B required to be issued to employees?

Accepted Answer

Employers must issue Form 16 annually on or before 15th June following the close of the financial year. Part A is downloaded directly from the TRACES government portal certifying quarterly TDS deposits, while Part B is drafted by the payroll team showing salary breakup, allowances, and applied deductions.

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