Madras High Court: House Rent Allowance, Travelling Allowance to be included for calculation of Over Time Wages

OVER TIME PAYMENT – WAGES UNDER THE Factories Act, 1948

Case: Heavy Vehicles Factory Employees Union
( Rep. By its general Secretary) & another
vs.
Union Of India
(Rep. By its Secretary to Government, Ministry of Defence & Ors.
(2012 LLR 358)

Forum: Madras High Court

Judgement: The petitioner union are registered and recognised union representing various categories of employees. The employees who were working under the third respondent establishment contended that they were, all along, in receipt of overtime allowances whenever they were detained for duty beyond the normal working hours of 48 hours in a week, and the said allowances were calculated and computed by including all allowances admissible to the employees like House Rent Allowance, City Compensatory Allowance, Transport allowance etc. as per the provisions of the Factories Act 1948. 

The first respondent issued a memorandum, dated 26.06.2009 stating that House Rent Allowance, Travelling Allowance and Small Family Allowance would stand excluded for the purpose of computation of overtime allowance without assigning any reason therein for exclusion of the same. Aggrieved by the order, the employees and the union filed original applications before the Central Administrative Tribunal.

The Tribunal dismissed their applications on the basis of a letter received from Legal advisor of the Ministry of Law opining that allowances are excluded from the term “wages” for the purpose of calculation of overtime allowance. 

On an appeal, the Court observed that as per the definition of sub section (2) of section 59 of the Factories Act, ordinary rate of wages means basic wages plus such allowances including the cash equivalent of the advantage accruing through the concessional sale to workers of food grains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work. The court further observed that, in the absence of any rule to exclude the aforesaid allowances from the definition of the basic wages, when the section excludes only two items, viz, bonus and wages for overtime work, the action of the first respondent in excluding the said allowances is without any authority and such items should be included. Accordingly, the order passed by the tribunal was set aside.

Shared by  Siju Jose T, +Siju Jose Oil Palm India Limited, Senior Manager - HRD

CBDT: SALARIED EMPLOYEES TO SUBMIT PROOF FOR LTA, HRA CLAIMS

The CBDT (Central Board of Direct Taxes) has introduced a new form (Form 12 BB) for claiming tax deduction towards LTA, LTC, HRA & interest paid for home loans. The new form mandates people to furnish proof of travel while claiming LTA, LTC, and details of landlord in case of HRA claims. Let us understand this in detail.

Why this Rule?

The main reason behind introducing this rule is to plug the loopholes under tax laws by tightening the entire procedure for claiming these tax exemptions. This becomes more important because there was no standard or prescribed format until now for filing these declarations. And in the Budget 2015, the Finance Act had already introduced Section 192(2D) of the Income Tax Act mandating employers to collect all necessary evidences, but the rules and form were yet to be prescribed. The same has been done now.

What is this form about?

The declaration needs to be filed for claiming deductions in a prescribed form i.e. Form 12 BB as set up under rule 26C.

What is the obligation on the Employer?

Earlier the employers were not under any statutory obligations for collecting bills or other proofs in order to prove the fact that their employees have actually utilized the money they are claiming towards these claims.

But, the current amendment with the introduction of this rule will now make all the employers obligated to collect all the relevant information in the prescribed format apart from collecting the proof of evidence, before they can allow the respective benefits under various tax benefits to the employees.

Details needed to furnish LTA, LTC and HRA claims

The circular as issued by the government has not specified the documents required to be submitted for claiming deductions but the existing documents that employees used to provide should hold good. Following are the documents which are required to claim these benefits:-

HRA:

As per the notification issued by the government, a person claiming HRA (Housing Rent Allowance) for over Rs. 1 lakh needs to furnish name, address and PAN i.e. Permanent Account Number of the landlord, apart from giving the rent receipts. With this the government can start tracking the fraudulent claims and can also verify whether the rent received by the landlord has been duly disclosed in their tax-return.

LTA/LTC:

To claim LTA (Leave Travel Allowance) or LTC (Leave Travel Concession), people need to provide the evidence of expenditure, and submit boarding pass and tickets for claiming LTA or LTC.

Housing Loan

To claim deduction on the interest on a housing loan, people need to provide PAN of the lender and their name and address.

Deductions u/s Chapter VI-A

People need to submit relevant proof for claiming deductions under chapters VIA(A) and VI-A that cover Sections 80C, 80CCC, 80CCD, 80E, 80G, 80TTA. Sections 80CCC, 80CCD and section 80C allow a deduction of Rs. 1.5 lakhs on specified investments.

What will be the impact of this new Rule?

The new rule and the forms will make it really easy for both the taxpayer and the employer because it brings standardization which will help employees and employers both. Moreover from the government's point of view, the new format will ensure collection and maintenance of information, and will assist them in streamlining their assessment process and curb the malpractice of fake claims.

When will this rule come into effect?

The rules will be applicable from June 1, 2016.

Shared by -Sindhu Riju, +sindhu riju , Manager - HR, CGH Earth Group of Hotels