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Focus on India: Year-end Activities [4 Key Items to Validate with Every Employee]

By Chris Klein, SVP, Global HR & Payroll Solutions

March 2018

Every country around the globe has specific procedures for payroll year-end and closing of financial obligations to their respective government bodies.  In this latest Focus On series, we would like to flash some insight on India payroll year-end activities and tasks since it’s precisely that time of year in this country now.

The Financial year in India starts effective 1st April (present year) until 31st March (of upcoming year) hence, 31st March being a very important date in India payroll, so all the employers should effectively plan, organize and process the timely payroll along with year-end tasks.

Starting a Fresh Financial Year Effective from 1st April
According to Indian law and payroll ethics, at the start of the year, all employers and payroll service providers ask their employees and any new hires to declare employee tax savings signed investment declarations forms hard/soft copies.

If an employee or new hire does not submit the investment declaration to the employer, then they are not eligible for any tax exemption except the employee’s provident fund (PF) contribution, voluntary and statutory for which no declaration is required.

Year-end Activities
Year-end in India is complex and the main crucial tasks fall at the time of year-end activities.  Most of the companies just organize year-end by starting in January and this lasts through March until the last payroll is finalized.  It’s the employer’s responsibility to further collect, check and validate the evidence of actual proofs corresponding to the investment declaration they made earlier.  Usually, companies take a soft copy of proofs from employees and re-calculate the tax liability during the February and March payrolls.

The potential impact on the employee’s salary during these months is as follows:

1. If the documents submitted for investment declarations match what was provided at the time of the investment submission, then there will be no tax impacts and employees will receive the same salary for January, February & March months respectively.

2. If the employee’s actual proofs submitted for investments are lower, this will result in higher tax liabilities and lower net pay.

3. If the employee’s actual proofs submitted for investments are higher than what he declared at starting of the year (within legal limits) this will result in lower tax liabilities and higher net pay.

4. If no declaration was made originally at the time of the investment declaration, proof of evidence can be submitted and the taxes can be reduced.  If this leaves the employee in a position of tax overpayment, then the employee can request the tax refund from the IT department by filing their individual income tax return.  

Key Points

  1.   The tax exemption should not be given to the employee in the final true up without the requisite proofs.
  2.   Due to this specific manual year-end process in India, February and March tend to be a very busy time for anyone involved, as the process is also complicated and usually is accompanied by a high volume of queries.

Deadlines

  • File the 4th quarter return with the Income tax Department – 31st May
  • Issue the Form-16 (year-end forms) to the employee – 31st May
  • File the individual income tax return – 31st July (Depending on the Govt. deadlines)

This is just an overview of the year end process for India.  There are many things to consider, not the least of which is your organization's policies and payroll systems.  

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