Processing tax deductions for employees monthly can be a labor-intensive task for many businesses, particularly larger enterprises.

With proper setup, BizCentric HR streamlines most tax-related calculations by automatically computing tax deductions during Salary Slip generation. Here’s how you can configure BizCentric HR to streamline your payroll processing.

Income Tax Exemption

In various countries, including India, regulations permit individuals to exclude certain types of expenditures from their annual taxable income, either partially or entirely. These expenditures may include donations to charitable organizations, educational expenses for children, specific investments, and more. To benefit from this exemption, individuals must provide proof of such expenditures.

BizCentric HR offers the ability to configure Income Tax Slabs, with tax calculations based on employees projected annual earnings. Employees are required to declare the amount of exemption they intend to claim at the beginning of the financial year through Employee Tax Exemption Declaration. This declaration helps in calculating payroll deductions, wherein tax deductions are computed based on the projected annual earnings minus the declared exemption.

In cases where no declaration is submitted by the employee, monthly deductions are calculated without considering any exemptions from the employee’s annual earnings. However, if an employee submits a declaration during the payroll period, the tax exemption will apply from the subsequent payroll onwards. Any excess tax collected in previous payrolls will be adjusted in the final payroll or when using the “Deduct Tax For Unsubmitted Tax Exemption Proof” feature in Payroll Entry or Salary Slip.

Furthermore, at the end of the year, employees are required to submit actual proof of their expenditures for filing purposes via Employee Tax Exemption Proof Submission. During the last payroll of the Payroll Period, BizCentric HR checks for proof submissions from employees. If proof is not provided, tax for the exempted income will be added to the standard deduction component.

Employee Tax Exemption Category

Exemptions from taxable income typically pertain to specific spending categories determined by government or regulatory bodies. BizCentric HR provides the flexibility to configure various categories eligible for exemptions. Examples of these categories in India include 80G, 80C, B0CC, and others.

To configure Employee Tax Exemption Categories, navigate to:

Human Resources > Payroll Setup > Employee Tax Exemption Category > New Employee Tax Exemption Category

Employee Tax Exemption Sub Category

Under each category, there could be many heads for which the exemptions are allowed. For example, in India, subcategories under 80C could be Life Insurance Premium

You can configure Employee Tax Exemption Sub Category by going to,

> Human resources > Payroll Setup > Employee Tax Exemption Sub Category > New Employee Tax Sub Exemption Category

HRA Exemption – Regional, India

For the fiscal year 2018-19, in India, House Rent Allowance (HRA) exemption from taxable earnings is the minimum of: * The actual amount allotted by the employer as the HRA. * Actual rent paid less 10% of the basic salary. * 50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).

As part of the Employee Tax Exemption Declaration, employees shall also fill out the HRA Exemption. BizCentric HR will calculate the exemption eligible for HRA and exempt it while calculating the taxable earnings.

> Note: Basic and HRA salary component shall be configured in Company for HRA exemption to work.

Options in Payroll Entry and Salary Slip

BizCentric HR streamlines the payroll process by automating bulk payroll processing through Payroll Entry.

Deduct Tax For Unclaimed Employee Benefits: This feature addresses flexible benefits (Salary Components marked as “Is Flexible Benefit”), which are typically excluded from an employee’s taxable income. However, if an employee fails to submit an Employee Benefit Claim, the amount received for these components becomes taxable in the last payroll of the Payroll Period. By selecting this option, BizCentric HR recalculates the tax and adds it for all untaxed benefits when generating the Salary Slip, even before the last payroll.

Deduct Tax For Unsubmitted Tax Exemption Proof: This option facilitates the deduction of taxes for earnings that were previously exempted based on the Employee Tax Exemption Declaration, but for which the employee has not submitted sufficient proof via Employee Tax Exemption Proof Submission. If this option is enabled, BizCentric HR disregards the Employee Tax Exemption Declaration and only considers Employee Tax Exemption Proof Submission when calculating exemptions from the employees’ annual earnings.

Note: If necessary, individual payroll processing for employees can still be performed manually by creating a new Salary Slip, and both of these options are available within the Salary Slip functionality.

Income Tax Slab

The Income Tax Slab feature assists in defining applicable tax brackets for the period, facilitating the management of evolving tax laws. Multiple tax slabs can be added for the payroll period, depending on the prevailing tax regulations. It’s important to note that fields in the Employee document can be utilized in the Condition field to apply tax slabs based on employee attributes.

Salary Component

To enable automatic tax deduction based on the configured Tax Slabs in the Income Tax Slab feature, you need to set up a Salary Component categorized as Deduction and activate the option for Variable Based On Taxable Salary. This option facilitates the automatic calculation of Income Tax by considering the applicable tax slabs and the declarations submitted by employees. The tax calculation occurs annually, dividing the remaining taxable salary equally over 12 months.

It’s important to note that if you define conditions and formulas for this Deduction component, they will take precedence in calculating the Salary Component, and the Tax Slabs configured in the Income Tax Slab will be disregarded. However, you can still utilize the Deduct Tax For Unsubmitted Tax Exemption Proof option in the Payroll Entry / Salary Slip to deduct taxes based on the Tax Slabs configured in the Income Tax Slab, prioritizing the exemption declared by employees via Employee Tax Exemption Proof Submission. This option is particularly useful if you need to deduct a fixed amount in each payroll instead of relying on BizCentric HR‘s automatic calculations based on the projected annual salary of the employee after exemptions declared through Employee Tax Exemption Declaration. At the end of the fiscal year, you can still employ Deduct Tax For Unsubmitted Tax Exemption Proof to address any remaining tax liabilities for the entire period.