HR ensures compliance with employment tax regulations through accurate reporting, timely payments, and audits.
Human Resources (HR) is one of the core functions of the Organization and plays a significant role in its growth. In a competitive business landscape, the role of HR starts with identifying the required skills, offering them competitive compensation, securing the salary components to receive high take-home pay, and administering with assured comforts.
The role of HR has transformed from a support function to that of a custodian for employee’s interests, increasing the benefits and attracting employees towards the organization as a place to work.
India has become the fastest-growing economy; approximately 93.7 million people file income tax returns year after year. The tax regulation in India holds two kinds of options, “Old Regime” and “New Regime” for the individual employee to choose from based on the benefit table. Always the happiness indicators for an employee are the accurately calculated tax against the salary that he or she is supposed to be receiving.
An integral part of salary calculation is the Employment tax computation, estimating the investments and expenses and collection of proofs against the investments and expenses. It involves proper computation of employment taxes on income provided by Organization. While the responsibility for tax compliance lies with the finance department, HR plays a significant role in facilitating and supporting employment tax management processes.
Income tax on salary is one of the central pillars of India’s taxation system, individuals are levied taxes based on their income slabs. An employer must deduct tax at source from an employee’s salary at the time of payment. This tax deduction is based on an employee’s estimated annual income and is calculated according to progressive income tax rates considering investments that employees are going to declare for the year.
An HR is responsible for understanding the employment tax regulations and is also responsible for communicating those needs and developing ways for employees to meet them. Here is how.
- PAN Operative – HR should ensure that all existing employees / new join employees have PAN cards and those are operative i.e., linked with Aadhar. In the absence of PAN operative higher TDS would be levied and employees would suffer so as HR they are supposed to ensure that all employees abide by the employment tax regulations.
- Training / Awareness Camp – HR can organize training sessions / distribute information materials that will provide awareness and educate employees on Income tax applicability/obligations, deductions, exemptions, and filing timelines.
- Collection of Employee Tax Documentation – HR is responsible for collecting and managing employee tax-related documentation. At the start of the year HR is supposed to collect Investment declarations from employees and ensure that basis the declaration tax gets calculated and submitted to the authority. In the last quarter or during exit HR is supposed to collect actual proof of investments validate it and accordingly levy tax.
- Updating of financial data – HR should ensure that all the employee’s information is up to date. Changes in the salaries of employees and any ad-hoc payouts provided to employees should be allocated as income and considered for tax computation.
- Tax Reporting – HR should ensure accuracy in tax computation and submission to authority every month before the due date. Ensure Quarterly returns / annual returns computation and filling to Income tax authority before the due dates.
- Coordination with Finance team – HR should collaborate with finance team to ensure accurate and timely deduction of taxes from employees’ salaries and timely remittance to authorities.
- Employee Assistance and Support – HR can address the queries/concerns raised by employees regarding taxes by providing them guidance on tax-related matters or referring employees to relevant resources or experts who could resolve their queries about tax calculation, deductions, or filings.
- Tax planning and Optimization – The primary focus of HR is ensuring compliance with tax laws and regulations however they can also collaborate with finance departments to explore tax planning strategies that minimize the Organization’s tax liabilities while remaining compliant with relevant laws and regulations.
Being HR and custodian of employment Tax regulations ensures taxes are correctly computed and that the company does not suffer hefty fines or appear to be intent on defrauding tax agencies. Avoid tax penalties here is what HR should do.
- Have proper employee classification.
- As you withhold employee payroll tax, ensure that the Company’s tax is also paid.
- Pay the tax on or before the due date.
- The tax laws keep changing so keep yourself appraised on it.
- File your tax under the correct Income tax sections.
- Take help/support from payroll partners who could guide and get the said activity done seamlessly.
Below are a few errors/negligence which you should avoid.
- Failure to collect tax in a consistent manner or at all.
- Mistakes are the data submission during returns filling.
- Not remitting the withholding tax to authorities on time.
- Continuously missing the filling and payment deadlines
As a HR you must be diligent in tax filing and reporting on behalf of your business. With proper understanding and use of appropriate tools and procedures, HR can seamlessly ensure the role of compliance with Employment Tax Regulations.
Outsourcing competency is the best part for organizations, to avoid errors and focus on business. Outsourcing the payroll and taxation will improve the quality, error-free, update of changes, automation, responsibility, and compliance with the latest regulations.
BE VIGILANT, APPRAISED AND DILIGENT
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