Checklist for a successful year-end payroll

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Fiscal year-end is a crucial and busy time for the payroll department. They must evaluate employee’s taxes, initiate compliance processes to keep legal footing and make preparations for the upcoming fiscal year.

If you are a small business owner, there is the additional responsibility of reconciling your accounts, analyzing the health of your business for the 4th quarter, and tracking annual performance. As hectic as it may sound, a little planning is all it takes to keep your business compliant.

In this article, we have compiled a year-end checklist for payroll, so you can enjoy a smooth closure to the current fiscal year and a clean start to the next.

True-up of year-end taxes

You’ve done all the hard work of allowing employees to submit their tax-saving declarations, so they can maximize their take-home income. It is now time to collect the corresponding proofs to ensure that these declarations match your records.

The payroll software you use should help you compute and validate the declared investments against the submitted proofs. If you are computing taxes manually, there are four possible outcomes when you do the tax true-up.

  • If the value of the declared investments is equal to the value of the submitted proofs, your employee’s net salary from the time they declared their investments won’t change.

  • If the value of the declared investments is greater than the value of the submitted proofs, their taxable income will increase. The employee will have to pay more taxes.

  • If the value of the declared investments is less than the value of the submitted proofs, the employee’s taxable income will decrease. Additional taxes paid up to that point will be adjusted so the amounts even out by the last month of the fiscal year.

  • If the employee doesn’t declare any investments or submit proof, the employee will be taxed according to the government-mandated tax slabs.

Tax filing and forms

Closing the fiscal year is incomplete without filing your annual returns for taxes collected and deductions applied on your employee’s paycheck. Here‘s a list of forms and tax remittance criteria that you have to follow.

Form 24Q – TDS returns on salary paid to employees

While paying your employees, you deduct TDS under section 192. You have to file deducted taxes with the government on a quarterly basis using Form 24Q. There are two parts to Form 24Q: Annexure 1 and Annexure 2. While annexure 1 has to be submitted every quarter, annexure 2 has to be submitted only for the last quarter because it has the overall tax liabilities of all your employees for that fiscal year.

Deadline dates for the submission of Form 24Q

PT returns on tax deductions from employees

As an employer, you are also responsible for deducting professional tax from employees according to the individual state regulations in India. The maximum amount of professional tax that can be deducted from any employee per year is ₹2500.

However, the actual amount deducted and the interval in which it is deducted is bound by individual state regulations. PT returns have to be filed each month. The year-end process is just to reconcile the returns filed throughout the year.

If you have more than 20 employees in your organization, you have to file PT returns before the 15th of the following month. File them before the end of the following month if you have less than 20 employees.

EPF payment due date and remittance

The EPF amount deducted from employers, and the employee contribution has to be paid on a monthly basis. For example, the EPF contribution for the month of May has to be deposited on or before the June 15th.

EPF returns due date

With the new ECR in place, filing and payment can be done at the same time.

EPF Returns Filing Due Date

ESI payment and filing

Every company that has registered for ESI must file their returns bi-annually. At year-end, they have to mention all the changes made during the year. They also have to submit their ESI contribution amount bi-annually.

The period for contribution is from April 1st to September 30th and October 1st to March 31st. Contributions must be given to the nearest branch office or ESIC regional commissioner.

ESI returns must be filed within 42 days of the end of these half-year periods. This means:

  • For the period from April to September, the deadline is November 12th

  • For the period from October to March, the deadline is May 12th

Covid-19: Check out this official thread published by the ESIC department to know the latest about month to month contribution deadlines.

Distributing Form 16 for employees

The same way you file TDS returns through Form 24Q, employees should file their individual tax returns through Form 16. You as an employer are responsible for generating Form 16 for your employees.

The deadline for you to generate it is on or before June 15th, immediately after the end of the fiscal year.

Conclusion

Year-end payroll might appear easy, but it can be extremely chaotic. The degree of this chaos may depend upon the scale of your organization as there are multiple compliance deadlines to manage. But by having a scheduled approach to your year-end activities, along with intuitive payroll software, you can ensure that your journey to the next financial year is smooth sailing.

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