Beneficial Provisions relating to Labours under Income Tax

Arjuna (a fictional character): Krishna, on May 1, 2024, we will be celebrating "International Labour Day." How important do you think it is for businesses to know about the labor-related provisions?

Krishna (a fictional character): Arjuna, Labor Day is a reminder of the contributions of workers to society. They are one of the strongest pillars of our nation, as well as the economy. Businesses have to interact with this labor force on a day-to-day basis and thus should know all the tax and other related provisions relating to labor.

Arjuna (Fictional Character): Krishna, what labor-related provisions under Income Tax are beneficial for the labor and also the businesses?

Krishna (a fictional character): Arjuna, Provisions beneficial for labor are in Section 10 of the Income Tax Act, which deals with exemptions from income tax. For example, gratuity paid to employees is exempt under u/s. 10(10), leave encashment is exempt under u/s. 10(10AA), the Provident Fund is exempt under u/s. 10(11), and other benefits are exempt up to certain limits. These exemptions aim to provide tax relief to employees and laborers.

Provisions beneficial for businessmen are Section 80JJAA, which provides deductions to employers who create new employment. Employers can claim a deduction of 30% of additional wages paid to new regular workers employed in manufacturing units for three years, encouraging job creation and growth in the labor market. Businesses are therefore benefited by hiring a new labor force and can thus scale their business, along with which the laborers will get new job opportunities.

Arjuna (a fictional character): Krishna, Could you please explain the taxability of labor supply in GST?

Krishna (a fictional character): Arjuna, There are two types of labor contracts, wherein only labor is supplied, which is known as a pure labor supply contract, and when material is supplied along with labor, it is known as a works contract. Pure Labor Supply, in the construction of a single residential unit or the construction, repair, or renovation of a civil structure under the Pradhan Mantri Awas Yojana, is exempt under GST. Other than this service, the supply of labor along with the supply of manpower, which includes drivers and other clerical staff, is taxable at the rate of 18%.

Although if the person is under the employment of another person, no GST is levied.

Arjuna (a fictional character): Krishna, what are other important labor-related provisions?

Krishna (Fictional Character): Arjuna, if labor services are received from contractors, then TDS at the rate of 1% for individuals and HUFs and 2% for others is required to be deducted.

Further, if the wages or salary of any employee exceeds Rs. 7,500 in a month, then the employer is required to obtain PTRC registration and deduction of Profession Tax from staff.

In addition to that, Employee Provident Fund (EPF) registration is mandatory for all businesses employing more than 20 people.

Arjuna (a fictional character): Krishna, What should we learn from this?

Krishna (a fictional character): Arjuna, The labor force is the working force of our nation. The hard work put in by them contributes to the growth of our country. As a business owner, we shall keep all the labor-related provisions in mind and shall diligently adhere to the provisions for the benefit of these hardworking laborers and to also avoid legal consequences.