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When should an employee feature in PF Form 10?
Organizations file Form 10 each month as part of complying with Provident Fund (PF) norms. Form 10 presents details of employees who have left the organization–in other words, the list of employees who have ceased to be PF contributors. Organizations seem to be following different practices when it comes to presenting exited employees in Form 10. Some organizations present exited employees in the Form 10 filed in the very next month while others do it in the Form 10 filed in the month after that. Let us take a look at this issue with the help of an example.
The last date of service for an employee is June 30, 2010 and the final settlement, which contains PF deduction, is done on June 30, 2010. In which Form 10 should this employee feature? Some organizations would show the employee information in the Form 10 pertaining to June 2010 filed in July 2010, while others would show it in the Form 10 pertaining to July 2010 filed in August 2010. We find both these practices being prevalent.
So which is the correct practice?
The Form 10 template reads as follows:
“RETURN OF THE MEMBERS LEAVING DURING THE MONTH OF ________.”
Some PF practitioners argue that if an employee’s last date of service is June 30, 2010, then the employee should feature in Form 10 pertaining to June 2010 filed in July 2010.
The counter-argument is since the employee has PF contribution in June 2010 and the same is remitted before July 15, 2010, the employee cannot feature in Form 10 pertaining to June 2010. The employee ceases to be a PF contributory only in July 2010 and hence should feature in Form 10 pertaining to July 2010 (filed in August 2010).
We concur with the counter-argument presented above and are of the view that the employee should feature in the Form 10 pertaining to the month after the month in which the employee’s last PF contribution is remitted. In the above example, the employee should feature only in Form 10 pertaining to July 2010 (filed in August 2010).
What is the basis of our view?
Each month, organizations present employee count with regard to PF contribution in both PF bank challan and Form 12-A, and unless the employee counts in both the challan and Form 12-A match, one wouldn’t know what the correct number of PF contributors is.
Let us assume that a company which had 50 employees on May 31, 2010, added no new employee in June 2010 and lost one employee on June 30, 2010. If the exited employee’s last date of service is June 30 and his PF deduction (and employer contribution) is remitted by July 15, the employee will feature in the employee count in July PF bank challan, and hence the total employee count in PF bank challan shall be 50.
Let us assume that the organization features the exited employee in June Form 10 (filed in July). In Form 12-A pertaining to June (filed in July), the organization shall present the details of employees as follows.
Details of Subscribers
No. of Subscribers as per last month: 50
No. of new Subscribers (Vide Form 5): 0
No. of Subscribers left service (Vide Form 10): 1
(Nett.) Total Number of Subscribers: 49
In the above example, the total number of subscribers as per Form 12-A (i.e. 49) is different from the subscriber count in the PF bank challan (i.e. 50).
Let us assume that the organization features the exited employee in July Form 10 (filed in August). In Form 12-A pertaining to June (filed in July), the organization shall present the details of employees as follows.
Details of Subscribers
No. of Subscribers as per last month: 50
No. of new Subscribers (Vide Form 5): 0
No. of Subscribers left service (Vide Form 10): 0
(Nett.) Total Number of Subscribers: 50
If information on exited employee is presented in July Form 10 (filed in August), the subscriber count in June PF bank challan and June Form 12-A will match. We are of the view that employee count in all PF forms, in which the count is presented, should match in order to avoid any ambiguity on the exact number of PF subscribers in an organization. However, we submit that there is no formal instruction from the PF department on when an exited employee should feature in Form 10.
What if the final settlement is delayed?
If the final settlement (which has PF deduction) is delayed, then Form 10 filing shall get delayed. For example, let us assume that an employee’s last date of service is June 30, 2010 and the final settlement is done only on September 30, 2010 and the PF amount pertaining to the final settlement is remitted to the department before October 15, 2010. In such a case, the employee should feature in November Form 10 (filed in December 2010). In the interim period (from July 2010 to September 2010), the employee shall be shown as a zero contributory in the PF bank challan.
Please note that if the last date of service is June 30, 2010, the organization should remit PF for the month of June before July 15 even if the final settlement containing other heads of pay is delayed. The practice of delayed PF remittance on account of delayed final settlement – as stated in the above example—should be avoided. Organizations should strive to remit PF on time even if the final settlement gets delayed.
Please note that the final settlement payment date is relevant from the PF point of view only if final settlement contains PF deduction. Otherwise, the date of final settlement has no relevance to Form 10. For example, let us assume that an employee’s last date of service is June 30, 2010 and the salary for June is paid out on the last day of June and the corresponding PF amount is remitted before July 15. If the employee’s final settlement (containing only heads of pay which have no impact on PF) is done on September 30, 2010, the employee should feature in July Form 10 (filed in August).
Deduction under Section 80G of the Income Tax Act
Recently, a payroll manager in a customer organization asked us if his organization can accept information on charitable donations made by employees for calculating deduction under Section 80G of the Income Tax Act. Let us take a look at the conditions that payroll managers should consider while calculating deduction under Section 80G.
1. Consider only specified donations.
According to Section 80G, donation to funds and charitable institutions, which have obtained approval from the Income Tax Department, can be considered for calculation of deduction. You can read the text of Section 80G by clicking here. However, the Income Tax Department has specified that an employer can accept information on only certain donations (such as those to The Prime Minister’s Drought Relief Fund) for the sake of calculating deduction on salary. For other donations, employees should seek tax relief in their tax return filed with the Income Tax Department and cannot route the same through the employer.
Please click the link below and scroll down to the bottom of the page to read the department’s notification on this.
http://www.incometaxindia.gov.in/publications/2_TDS_On_Salaries/Chapter06.asp
To quote from the page pertaining to the above link,
“In respect of section 80G, no deduction should be allowed by the employer/DDO, from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible u/s 80G will have to be claimed by the taxpayer in the return of income. However, DDOs, on due verification, may allow donations to the following bodies……”
Any donation to a fund/institution not featured in list specified by the Income Tax Department (presented in the above page) should not be considered by the employer for Section 80G deduction calculation.
2. Check proof of donation.
Even if the donation pertains to a fund/institution which can be considered by the employer, please scrutinize the proof of donation in order to check the veracity of the donation. Only donations in cash should be considered. In addition, the donation should have been made in the year in which the deduction is sought.
3. Apply the correct deduction percentage.
Please apply the correct percentage (50% or 100%) as specified by the Income Tax Department for each of the donations while calculating the extent to which the donation can be considered for deduction.
4. Limit on deduction under Section 80G.
For all donations that an employer can consider for calculation of deduction, there is no limit on the total deduction that can be claimed under Section 80G. For example, employees can claim deduction under Section 80G to the extent of even their total income (leading to zero taxable income).
When employees claim deduction under Section 80G by submitting information on donations directly to the Income Tax Department, the aggregate deduction on account of some of the donations is limited to 10% of the employee’s “Gross Total Income.” The term Gross Total Income is defined in the Income Tax Act. Employees need to know for which of the donations the 10% limit is applicable when they seek tax relief under Section 80G in their income tax return.
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