Question is related to ESI
This query is : Resolved
GIRISH KUMAR MITTAL
(Querist)
09 August 2008
1.If any person,s gross salary is less than rs.10000 before inclusion of overtime but after including overtime it exceeds Rs. 10000 limit,Can be make ESI Deduction of 1.75%/4.75% in this case.
2.If it is not allowed by the law and we have deducted by mistake, then what are the penal provisions
2.If it is not allowed by the law and we have deducted by mistake, then what are the penal provisions
Ram Avtar Singh
(Expert)
09 August 2008
yes it should be deducted
GIRISH KUMAR MITTAL
(Querist)
09 August 2008
Not fully satisfied with the answer.Please provide full details
19 July 2025
1. Regarding gross salary and ESI applicability:
The ESI Act provides that the wage limit for coverage is Rs. 21,000 per month (as per latest amendment, but earlier it was Rs. 10,000).
The key point is whether overtime is included in wages for ESI calculation.
Overtime wages are excluded from wages for ESI contribution purposes.
This means:
If basic salary + allowances (excluding overtime) is less than Rs. 10,000 (or Rs. 21,000 as per current limits), the employee is eligible for ESI, even if overtime makes total gross salary exceed that limit.
Therefore, ESI deduction is to be made on wages excluding overtime.
2. If deduction is made incorrectly including overtime:
Since ESI contributions are calculated only on wages excluding overtime, deducting ESI on overtime is incorrect.
If you have deducted ESI on overtime wages by mistake, you can adjust this in the next month's return or contact the ESI office for rectification.
3. Penal provisions for incorrect deduction:
Generally, wrong deductions or non-compliance under ESI can attract penalties under the ESI Act.
If deductions are made in excess, the employer may be liable to return excess deductions and may face interest or penalty for non-compliance under Sections 85 and 86 of the ESI Act.
However, for honest mistakes like including overtime in wages, usually a rectification request and adjustment is accepted, unless it’s a repeated or deliberate offence.
The ESI Act provides that the wage limit for coverage is Rs. 21,000 per month (as per latest amendment, but earlier it was Rs. 10,000).
The key point is whether overtime is included in wages for ESI calculation.
Overtime wages are excluded from wages for ESI contribution purposes.
This means:
If basic salary + allowances (excluding overtime) is less than Rs. 10,000 (or Rs. 21,000 as per current limits), the employee is eligible for ESI, even if overtime makes total gross salary exceed that limit.
Therefore, ESI deduction is to be made on wages excluding overtime.
2. If deduction is made incorrectly including overtime:
Since ESI contributions are calculated only on wages excluding overtime, deducting ESI on overtime is incorrect.
If you have deducted ESI on overtime wages by mistake, you can adjust this in the next month's return or contact the ESI office for rectification.
3. Penal provisions for incorrect deduction:
Generally, wrong deductions or non-compliance under ESI can attract penalties under the ESI Act.
If deductions are made in excess, the employer may be liable to return excess deductions and may face interest or penalty for non-compliance under Sections 85 and 86 of the ESI Act.
However, for honest mistakes like including overtime in wages, usually a rectification request and adjustment is accepted, unless it’s a repeated or deliberate offence.
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