FEBRUARY 12, 2019

By TIOL Edit Team

PARLIAMENTARY Standing Committee (PSC) on Labour has aptly called for revision of Income Tax Act (ITA) to resolve problems faced by employees in the realm of tax deducted at source (TDS) from salaries.

PSC's recommendations for reforming provisions for deduction of employee's provident fund (PF) contribution by employers are equally commendable.

A glance through the PSC's latest report and earlier CAG reports shows Government's laxity in monitoring various deductions by employers. The Government has also been slow in taking timely action against defaulters.

In its report presented to Parliament on 7th February 2019, PSC has noted Central Board of Direct Taxes' (CBDT's) stance that TDS, not deposited by employer, remains "recoverable in the name of employee only and not employer".

ITA's Section 199 requires that the tax deducted by the employer must be deposited into the Government account for the amount to be treated as tax credit of the employee. Till the employer deposits TDS or it is recovered from him, Income Tax Department (ITD) does not extend corresponding credit to the employee.

To cushion hardship faced by employees on this count, CBDT had issued two circulars dated 1st January 2016 and 11th March 2016. These restrained assessing officers from enforcing any demand on the employee where the employer does not deposit deducted TDS in the Government account.

Another circular issued in 2015 prescribes that where the employer has not deposited TDS with the Government, the resultant tax demand from the employee may be reduced by the assessing officer up to Rs.1,00,000/- after verifying the TDS certificate, Indemnity Bond and other relevant documents submitted by the employee.

PSC is right when it says that these circulars are only clarifications. It has thus urged the Government to revisit relevant provisions: Section 199 and 205 of the ITA "to specify that demand on account of tax credit mismatch cannot be enforced coercively".

It adds: "the condition of Indemnity Bond as referred above though in certain cases, may be reviewed to bring relief to the employee whose TDS has already been deducted from his salary. Further, the Committee, not being clear about the intention behind the above Rs.1,00,000 limit, desire that the Ministry of Finance should also consider raising the present said limit of Rs.1,00,000 in the interest of welfare of the workers".

As for PF, Section 6 of the Employees' Provident Funds (EPF) & Miscellaneous Provisions (MP) Act provides that the employer shall pay contribution at the rates prescribed. It also stipulates that employees' contribution shall be equal to the employer's contribution. Employees have the freedom to contribute an amount exceeding the rate as prescribed in the section.

PSC has voiced concern over employers not depositing PF with relevant Employees Provident Fund/trust, under-reporting number of employees on their rolls, authorities' lackadaisical approach towards penalizing defaulting employers and recovering PF dues from them.

It is perturbed to learn that the authorities had not recovered a whopping Rs.8207.49 crore as provident fund dues from defaulting employers as on 31 st March 2018.

The Committee has acknowledged that PF scheme is designed to promote regular saving habit among workers. It has, however, pointed out that if the employee does not get the benefit of his saving due to employer's failure in depositing the same with Government, then, the very purpose of the legislature gets defeated. Consequently, the employees are deprived of benefit of their saving even after they paid their share of PF contribution.

PSC is "not fully convinced of" the Government's claim that the employer has been authorized by the legislature to deduct the contribution from the salary of the employee. PSC contends that section 6 of EPF Act "does not specifically/ categorically authorise the employer to do so".

The report says: "The Committee, therefore, recommends that the Ministry of Labour and Employment and EPFO should reconsider the issue and if need be obtain legal opinion, make a specific statutory provision in the Act if required and apprise the Committee accordingly at the earliest".

In case of defaulting employers, authorities take legal action for recovery of the dues. Employees Provident Fund Organisation, however, does not readily give to the employees their share which has been deducted by the employer but not deposited with EPFO. The PF payment is made to employees only after due process of recovery from the employer. This process takes years, causing immense suffering to the workers.

Keeping in view the employees' plight, PSC has pertinently called for amendment of EPF Act to ensure that employees don't suffer due to defaulting employers.

PSC has noted that issues pertaining to deduction at source have been pending for many years. It thus wants the Government to resolve them promptly to alleviate the miseries of millions of workers.

The Government should realize that ease of accessing legitimate dues of workers is as important as ease of doing business for overall health of the economy and employer-employee relationship.