Know if All the Deductions from Your Salary Are Legal or Not and What to Do About it.

1. Introduction

Deductions from salary can be quite misleading to an employee. The situation gets complicated when different amounts are being deducted from an employee’s paycheck each month. It thus becomes very important to understand what are the mandatory and lawful deductions and which ones are not. This understanding on the part of employees helps them take corrective measures to safeguard against extraneous or illegal deductions.

2. The following are tax deductions under Section 16 of the Income Tax Act of 1961:

Section 16 of the Income Tax Act, 1961, permits the employee to subtract special allowances other than those mentioned above from his or her gross income and further tax losses as well.

• 2.1 Standard Deduction, Section 16(ia):
  The salaried class has a fixed deduction of ₹50,000 in both old and new tax regimes. This represents an easy tax-filing procedure where the tax amount is reduced directly.
• 2.2 Payee Deduction—Entertainment Allowance, Section 16(ii)
  This deduction is applicable for only government employees under the old tax regime. It is subject to the lower of ₹5,000, 1/5th of basic salary, or the actual entertainment allowance received.
• 2.3 Professional Tax (Section 16(iii))
  With an annual limit of ₹2,500, professional tax paid during the year can be claimed. Again, this only applies to the old tax system.

3. Common Lawful Wage Deductions

3.1 Statutory Deductions:
• 3.1.1 Provident Fund (PF): Of the basic salary of any employee, the employer should deduct a certain percentage, usually being 12%, for Provident Fund contribution. This is a compulsory contribution towards saving for retirement.
• 3.1.2 Employee State Insurance (ESI): Employees earning up to a certain wage threshold have ESI contribution deducted for health and medical benefits.
• 3.1.3 Professional Tax: In some states, professional tax is deducted. Some part of your salary is taken off in the form of professional tax. According to law, this tax is collected by the state government.
• 3.1.4 Tax Deducted at Source (TDS): Your employer deducts TDS from your salary in lieu of the income tax slab that is applicable to you. This is done so that the income tax is regularly collected every year.
3.2 Voluntary Deductions:
• 3.2.1 Employee Provident Fund (EPF) Voluntary Contributions: With 12% compulsorily applicable, an employee might want to contribute more towards his or her EPF. However, that should be a voluntary option and not compulsorily through the employer.
• 3.2.2 Health and Life Insurance Premiums: In those cases where an employee has chosen employer-sponsored health insurance or life insurance, the premiums are commonly deducted from his or her salary.
• 3.2.3 Loan Repayments and Advances: If you accepted a salary advance or loan from your employer, the payslip may contain repayments in it.

4. Illegal and Unapproved Deductions

• 4.1 Without consent:
  Whether in your employment contract or not, any deduction without your consent is not allowed. The employer cannot deduct the money without valid information to the employee.
• 4.2 Fines and Penalties without Explanation:
  Minor offenses such as lateness or failure to attain set targets may attract fines from the employers. Unless mentioned in the employment contract or specified through company policies mutual to the employee and the employer, such fines can be termed illegal.
• 4.3 Excessive Deductions for Damage or Loss:
  The cost incurred because of damage or loss due to the negligence of the employee can be recovered by offsetting at the employer’s expense that reasonably approximates the actual cost of damage.

5. What to Do If You Suspect Illegal or Unlawful Deductions?

• 5.1 Check Your Payslip:
  Always carefully check your payslip every month for unclear deductions. Compare it with the previous payslips to identify the mismatch.
• 5.2 Understand Employment Terms:
  Check whether the deductions align with the terms agreed upon between you and your employer by reviewing the employment contract and company policy documents.
• 5.3 Talk to HR:
  If the deductions appear arbitrary and of unknown origins, bring this to the attention of your HR department and ask them to clarify why this deduction was done and to present the evidence.
• 5.4 Consult a Labor Law Expert:
  You may have to approach a labor law expert if the issue cannot be solved internally. They will give you a better insight into the rights involved. Attorneys can help you take action against unlawful deductions.
• 5.5 File your complaint:
  You may still appeal to the Labour Commissioner’s Office for continuous illegal deductions or file your complaint with the Employee Provident Fund Organization if PF contributions are mismanaged.

6. Conclusion

Understanding your deductions is key to avoiding illegal deductions of your hard-earned money. Knowing the required, the optional, and those that are illegal thus arms you with just the necessary action to embark upon. Be vigilant and go through your payslips; argue with your employer over differences in it, and seek legal input at times.

By being proactive, you would have made sure that your pay was treated in a more transparent and fair manner, hence giving you more peace of mind and financial security.

7. Stay updated with Plutus!

Understand the legal deductions from your salary and ensure compliance with ease. At Plutus, we provide guidance about deductions from Provident Fund (PF) and Employee State Insurance (ESI) to TDS and more. We’ll help you ensure that your salary deductions are lawful, while also advising on managing any discrepancies or illegal deductions.

To stay informed, keep visiting our website and get in touch with us to learn more about our services!

8. FAQ’S

• 8.1 What are the usual regular compulsory deductions against my salary?
  Well, in most cases, this will include Provident Fund (PF), Employee State Insurance (ESI) contributions, Professional Tax, if applicable in your state, and TDS, according to the applicable income tax slab.
• 8.2 Can my employer take funds out of my paycheck without my permission?
  It is technically illegal to make deductions without your consent or even unstated in the employment contract. Employers should advise employees of the type and purpose of any deduction.
• 8.3 Is my employer allowed to deduct money for lateness or failure to meet targets?
  Lateness or failure to meet targets deduction is only legal if there has been a clear mention of this in the employment contract or company policy agreed to by both the parties concerned. Otherwise, such deductions might be illegal.
• 8.4 How do I check whether Provident Fund (PF) contributions are being correctly deducted from me?
  This can be done using the EPFO member portal with the help of UAN. The payslip should also reflect PF deduction.
• 8.5 What is done if I notice an unexplained deduction on my payslip?
  First of all, check your employment contract as well as the rules of the company in question to find agreed-upon deductions. If it still remains unclear, then report this situation to the HR department. In case of no response or resolution, seek a labor law attorney.
• 8.6 Are the premiums for life and health insurance have to be deducted?
  No, these are always fringe benefits and optional deductions. If you choose to receive your employer’s offered health or life insurance, then the premium will be taken from your paycheck. But you have to be aware of the deduction and accept it.
• 8.7 Is my employer authorized to withhold an amount for training costs if I leave the company before its completion?
  Most employers can deduct training expenses from the salary of an employee only if such costs are specified in the employment contract or training agreement signed by the employee. In simple words, if a written agreement does not exist, then the deductions will be illegal.
• 8.8 Is my employer entitled to make deductions for damages that I have caused at work?
  It is only allowed to deduct damages from an employee up to the actual cost of the harm. It is made only on reasonable grounds, and the concerned employee must be given prior notice.
• 8.9 What redress do I have in law if I discover unauthorized deductions in my salary?
  If the unauthorized deductions do not stop, one can address a grievance to the Labour Commissioner’s Office or go directly to the Employee Provident Fund Organization for PF-related grievances. There should also be an attorney at law specializing in labor law.
• 8.10 How often should one look over his payslip to ensure the correct deductions are made?
  An individual should check his/her payslip monthly. By doing this on a regular basis, he or she will easily notice any discrepancies or other unauthorized deductions that might have been made. It will also help to raise the issue in time.
• 8.11 How much is the standard deduction of salary income?
  Standard deduction is a flat ₹50,000 deduction from salary incomes of all employees with the motive of reducing taxable incomes. The same applies to both old and new tax regimes.
• 8.12 Who is eligible for the entertainment allowance deduction?
  The entertainment allowance deduction is allowed only for government employees under the old tax regime. The lowest amount is either ₹5,000, 20% of the base wage, or the actual allowance received.
• 8.13 What is professional tax, and can it be deducted from salary income?
  A state-level tax imposed on salaried individuals is known as the professional tax. It can be a deduction under taxable income up to ₹2,500 a year.
• 8.14 How does TDS (Tax Deducted at Source) work on salary?
  The amount of TDS (Tax Deducted at Source) on an employee’s salary is calculated based on their total taxable income. This includes their basic salary, allowances like Dearness Allowance (DA), House Rent Allowance (HRA), conveyance and travel allowances, as well as any bonuses. The calculation also considers deductions such as the standard deduction, EPF
• 8.15 Can I avail of more than the mandatory 12% deduction on EPF under Section 80C?
  Yes, above the limit of 12% contribution that an employee has made towards EPF, so long as the total of these and other allowable expenditures do not exceed the overall limit of ₹1.5 lakhs per year.

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