Payroll India FY 2018-19 changes w.r.t. Standard Deduction and Health and Education Cess
So, recently (Okay, not very recent, but close enough for our discussion) there were some changes to the tax calculation in Payroll India which might have caused some issues in the understanding of said changes to a lot of people. Now, seeing as how the Note has an extensive amount of changes, I’ll be focusing on the two changes that have caused the most amount of confusion. Please keep in mind that like all blogs related to legal changes, the content and the explanation given here MIGHT no longer be correct depending upon year when you’re reading it, but as of right now, the information given here is as per the FY 2018-19 changes released by the Govt. of India. Also, if you don’t implement the Note 2606366 before running the payroll for FY 2018-19, then your payroll results might not match up with some things I’m going to talk about here and I would specifically tell you to IMPLEMENT this note BEFORE running the payroll as failing to do so might cause problems with legal reporting later down the year. So with those disclaimers out of the way, let’s dive in….
Standard Deduction is basically a deduction of INR 40,000 for EVERYONE* (Why the * you ask? Well, we’ll get to that later) whose salary is being accounted under the Payroll-India rules. This deduction is calculated under the function INTAX and the amount is saved in the technical wage type /420. For who need a little more technical information, you can check the exact coding in the FORM called STDDED04. The constant “STDDN” in the view V_T511P contains the exact limit (INR 40,000 right now) upto which an employee gets Standard Deduction.
Now, I know people are going to ask. What do you mean “The exact limit UPTO which an employee gets Standard Deduction”? So, here we will come back to the * we talked about earlier. Plainly speaking, Standard Deduction is NOT a guarantee that everyone can get a deduction of INR 40,000. For example, for an employee whose value of difference of /418 (Balance after considering Section 10 exemptions on Gross Salary) and /422 (Annual Professional Tax) is LESS than INR 40,000, Standard Deduction will equal to this difference and not INR 40,000. If we get into the logic,
Suppose value of /418 = X
Suppose value of /422 = Y
If X-Y < 40000
Then Standard Deduction = X-Y
Okay, now that we’re done talking about the calculation and generation of Standard Deduction, I guess we should get into the reporting of the same. Unfortunately, as of right now, I can’t get into it. Right now (date – 27/6/2018), the format for Form 24Q and Form 16 has not yet been released officially, by the Income Tax Authority of India. Therefore, if you run Form 24Q, you won’t see the value of Standard Deduction anywhere on the output as no one knows how this reporting should be done, as of today.
So, there is one important thing that should be noted about Standard Deduction. Even though, Standard Deduction is supposed to replace Medical Exemption and Conveyance Exemption, the latter can still be claimed by Physically Handicapped employees. How to get this to work? Simple. Go to IT0004 of the employee in question and maintain “Type of Challenge” as “N1” in the master data.
HEALTH AND EDUCATION CESS:
So, with the good news of an extra deduction for taxpayers out of the way, let’s get to the slightly (sour? bad? irksome?) part of the changes for FY 2018-19. From Financial Year 2018-19, taxpayers have to pay 4% Education Cess on their Income Tax (and surcharge, if applicable) instead of the usual 2% and 1% Education Cess and Secondary and Higher Education Cess respectively (Yay?!?!), as was the case previously. These changes are one of the biggest reasons why I mentioned that you should implement the Budget Changes for FY 2018-19 BEFORE running the payroll. If you run the payroll for FY 2018-19 without implementing the changes, you’ll be generating Education Cess and Secondary and Higher Education Cess instead of Health and Education Cess and that could cause serious statutory reporting inconsistencies later on in the year.
So, the wage type for Health and Education Cess (yearly value) is /44A. The monthly value on the other hand is stored in /4MC. Coming to the reporting, again, since we don’t have an updated format we don’t know how to report Health and Education Cess in Form 16 and Form 24Q. This will remain the case till the Govt. comes out with the legal changes for the official reporting and unfortunately, SAP cannot give a timeline for the same.
So, this should probably clear out any confusion regarding these two topics. I know that the Budget 2018 changes were a bit (no, I know, it was more than a bit) more, shall we say, exhaustive, but right now, I just wanted to concentrate on the topics which were causing the most amount of confusion. Depending upon the reception of this blog, I might write another one if I see people asking for a detailed (no, this wasn’t dry, we’ll call this detailed, there’s a difference 😉 ) discussion on another topic, I might write another blog on it. This one is getting too long from my ramblings anyway. So, fellow consultants, Adios and remember, Plus Ultra!
EDIT – Note 2665212 has now been released for Form 24Q which brings the format in line with the latest Govt. approved format, so Health and Education Cess is now shown in the Form 24Q output.