Beneficial Provisions relating to Labours under I. Tax & GST
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Beneficial Provisions relating to “Labours” under Income Tax- “Employee or Labours
Income tax laws often include provisions that provide benefits or relief to laborers or employees. Provisions beneficial for labours is Section 10 of the Income tax Act, which deals with exemptions in income tax. For example, gratuity paid to employees exempt u/s. 10(10), leave encashment exempt u/s. 10(10AA), Provident Fund exempt u/s. 10(11) and other benefits are exempt up to certain limits. These exemptions aim to provide tax relief to employees and labours. Here are some common beneficial provisions relating to “labors” under income tax:
- This is a fixed deduction allowed to salaried individuals, irrespective of their actual expenses. It reduces the taxable income and hence, the tax liability.
- Employees are allowed to claim expenses incurred on travel during their leave period for themselves and their family members. The amount exempted is subject to certain conditions.
- If an employee receives HRA as part of their salary and pays rent for accommodation, they can claim exemption on the HRA subject to specified conditions.
- A certain amount of transport allowance received by an employee can be exempt from tax.
- Gratuity received by an employee on retirement or death is exempt up to a certain limit as per the Income Tax Act.
- Contributions made by an employee towards EPF and VPF are eligible for tax benefits under Section 80C of the Income Tax Act.
- Certain medical allowances or reimbursements for medical expenses incurred by an employee or their family members may be exempt from tax up to a specified limit.
- Allowances received by an employee for the education of their children can be exempt from tax up to a specified limit.
- Some employers provide meal allowances to their employees, which may be exempt from tax up to a specified limit.
- Certain professions or industries may have specific allowances or deductions available to them under the Income Tax Act.
Beneficial Provisions relating to “Labours” under Income Tax- beneficial for Businessmen :
Section 80JJAA serves as an important tool for promoting employment generation and supporting the growth of businesses, particularly in the manufacturing sector. Provisions beneficial for Businessmen is Section 80JJAA which provides deductions to employers who create new employment. It aligns the interests of employers and employees while also contributing to broader economic objectives. Section 80JJAA of the Income Tax Act provides a deduction for eligible businesses regarding additional employee recruitment costs. Here are the details for the AY 2023-24:
Deduction Amount under Section 80JJAA: Businesses can claim a deduction of 30% on additional employee recruitment costs for three consecutive assessment years. Employers can claim a deduction of 30% of additional wages paid to new regular workmen employed in manufacturing units for three years, encouraging job creation and growth in the labour market.
Eligibility Criteria under section 80JJAA
- The business should not result from the transfer of ownership or reconstruction of an existing business.
- Business must be registered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
- The business must be engaged in manufacturing goods or producing specified articles.
- Additional employees must have been hired in the previous financial year.
- Monthly income of the additional employee should not exceed Rs 25,000.
- The appointed employee must have worked for a minimum of 240 days in the previous year.
Tax Benefit under section 80JJAA : Businesses can claim a 90% tax benefit under Section 80JJAA for the assessment year relevant to the previous year of providing employment. Businesses are therefore benefitted by hiring new labour force and thus can scale its business along with which the labours will get new job opportunity.
Other Beneficial Provisions relating to “Labours” under Income Tax- Beneficial for Businessmen :
- Businesses can claim a deduction for salaries and wages paid to their employees as a business expense, reducing their taxable income.
- Contributions made by the employer towards EPF for employees are allowed as a deduction under the Income Tax Act. This helps in reducing the tax liability of the business.
- Any gratuity payments made by the employer to employees are allowed as a deduction, subject to certain conditions, thereby reducing the taxable income of the business.
- Expenses incurred by the employer on employee welfare activities such as medical facilities, education, or housing can be claimed as deductions, benefiting both the employees and the business.
- Expenditure incurred by the employer on training programs for employees can be claimed as a deduction, encouraging skill development and enhancing productivity.
- Contributions made by the employer towards health insurance premiums for employees are allowed as a deduction, promoting employee well-being and reducing the tax burden on the business.
- ESOPs are often used by businesses to attract and retain talent. Under certain conditions, ESOPs may qualify for tax benefits, such as deferment of tax on the employee’s part until the sale of the shares acquired through the plan.
- Leave encashment payments made to employees are eligible for tax benefits subject to specified conditions, thereby reducing the tax liability of the employer.
- Businesses may provide various retention incentives to employees, such as bonuses or special allowances, which can be claimed as deductions, reducing the taxable income of the business.
- Contributions made by the employer to approved pension schemes for employees are allowed as deductions, providing retirement benefits to employees and tax benefits to the employer.
GST Provisions beneficial for Businessmen:
Under Goods and Services Tax (GST) laws, there are provisions that benefit both laborers and businessmen by providing relief, incentives, or simplification in compliance related to labor-related transactions. Beneficial Provisions relating to “Labours” under GST law for the beneficial of Businessmen. We are discussing various aspects related to labor contracts, taxation, and regulatory requirements in India. Here’s a breakdown of the points you mentioned:
- Types of Labor Contracts: Pure Labor Supply Contract: Only labor is supplied.
- Works Contract: Material is supplied along with labor.
- GST Exemptions: Pure Labor Supply in certain contexts like the construction of single residential units or under the Pradhan Mantri Awas Yojana is exempt from GST.
- Taxation of Labor Supply with Manpower: Supply of labor along with manpower, including drivers and clerical staff, is taxable at 18% under GST. If the labor is under the employment of another person, GST is not levied.
- Tax Deducted at Source (TDS) for Contractors: TDS at the rate of 1% for individuals and HUFs, and 2% for others, is required to be deducted if labor services are received from contractors.
- Professional Tax and Provident Fund: If wages/salary to any employee exceeds Rs. 7,500 in a month, the employer is required to obtain PTRC registration and deduct Profession Tax from staff.
- EPF registration is mandatory for all businesses employing more than 20 persons.
Other beneficial provisions relating to “labors” under GST law for the benefit of businessmen:
Following Provisions under GST law aim to streamline tax compliance, reduce the tax burden on businesses employing labor, and promote investments in labor-intensive activities, ultimately contributing to economic growth and development.
- The GST Composition Scheme, which is beneficial for small businesses, allows eligible taxpayers to pay GST at a fixed rate of turnover without the hassle of maintaining detailed records and filing monthly returns. This simplifies tax compliance and reduces the administrative burden on small businessmen, including those employing laborers.
- Businesses can claim input tax credit for the GST paid on goods and services used for business purposes, including those related to employing laborers. This helps reduce the overall tax liability for the business, making it financially beneficial.
- Under RCM, the liability to pay GST is on the recipient of goods or services instead of the supplier for certain specified categories of goods and services. This mechanism, while increasing compliance burden, allows businesses to claim input tax credit on goods and services procured from unregistered vendors, including labor services.
- GST laws provide for the concept of job work, where a principal manufacturer can send goods to a job worker for further processing without payment of GST. This benefits businesses involved in manufacturing processes and outsourcing labor-intensive tasks.
- GST laws allow for zero-rated supplies of services exported out of the country, meaning that no GST is levied on such exports. Businesses providing services internationally, including those relying on labor services, can benefit from this provision.
- Services provided by Goods Transport Agencies are subject to reverse charge mechanism under GST. However, the GST paid under RCM can be claimed as input tax credit by the recipient, which can include businesses engaged in transportation and logistics, thus benefiting from labor-intensive activities.
- Under GST, works contract services, which often involve significant labor costs, are treated as a supply of services. Businesses engaged in works contracts may benefit from simplified compliance and input tax credit mechanisms under GST.
- Businesses investing in training and skill development programs for their employees can claim input tax credit on related expenses, thus reducing the overall cost of such initiatives.
- Expenses incurred by businesses on employee welfare activities, such as health insurance, medical facilities, or recreational activities, can be claimed as input tax credit, promoting employee well-being and retention.
- GST on services provided by contractors for labor services is applicable. However, businesses can claim input tax credit on such expenses, thereby reducing the tax burden on labor-intensive industries.
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