7 February, 2018
India’s General Budget for the financial year 2018-2019 was presented by the Finance Minister in Parliament on February 1, 2018. This budget was the last budget for the current term of the BJP led government.
We have reviewed the budget speech and provided the key takeaways from an employment law perspective below:
1. Provident Fund Contributions
- The government has proposed to make provident fund contributions of 12% of wages for all new employees for a period of three years. Prior to this the Government was making contributions of the employers’ share of 8.33% to the pension scheme under the Pradhan Mantri Rojgar Protsahan Yojana. The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, is a very important social security legislation requiring the employer and employee to make contributions to a statutory retirement fund at the rate of 12% of the basic wages, dearness allowance and retaining allowance and capped at INR 15,000. Only employees who are earning less than INR 15,000 per month or who are already existing members of the statutory fund are eligible to benefits of the pension fund. We assume that the governments proposal will be limited to contributions of 12% on INR 15000. This statute is applicable to establishments having 20 (twenty) or more employees.
- As part of the budget, the government has proposed to reduce the mandatory contribution limit for women employees from 12% to 8% for the first three years of their employment. However, the employers’ share of the contribution will remain the same. The proposal has been made with the objective of incentivizing employment of women in formal sectors by allowing them a higher take home salary.
2. Fixed Term Employment
The government had previously amended the Industrial Employment (Standing Orders) Act, 1946, and allied rules, to allow employment for fixed terms in the apparel manufacturing sector. The government has now proposed to allow all sectors to engage fixed term workers. It is pertinent to note however that employment law in India had always allowed for fixed term employment even prior to this proposal. That said, courts have held that employees could not be engaged on a fixed term basis solely for the purposes of avoiding paying benefits and if the nature of the work being carried out by them was perennial and the same as regular employees. We expect that courts would continue to use this standard to determine the validity of a fixed term employment arrangement, even if the proposal comes through. This proposal is currently facing flak from trade unions.
3. Tax Benefits to Employees
The government has proposed to amend the manner in which employees salaries would be taxed. Previously, employees were allowed to claim tax benefits separately for amounts that they received as transport allowance (i.e., INR 1600 per month) and medical allowance (i.e., INR 15000 annually). The government now proposes that a standard deduction of INR 40000 be allowed from the salaries of employees in place of transport allowance and medical allowance. This standard deduction would potentially increase the tax savings of employees.
The aforementioned proposals will need to be formally introduced by way of amendments to the legislations. We are closely tracking these developments and will keep you updated.
For further information, please contact:
Nohid Nooreyezdan, Senior Partner, AZB & Partners
nohid.nooreyezdan@azbpartners.com
Veena Gopalakrishnan, AZB & Partners
veena.gopalakrishnan@azbpartners.com
Nishanth Ravindran, AZB & Partners
nishanth.ravindran@azbpartners.com
