Expected Dearness Allowance from July-2011


Apart from annual increment, which falls in 1st July every year, all the Government Employees are very much excited to know the rate of Dearness Allowance from 1st July 2011.The reason for their excitement to know the D.A from July 2011 is quite simple. Though the Annual Increment also brings some adequate amount of money to their pay package, they feel no excitement in it. Because every body knows and is sure that they will get 3% of their Pay in the pay band and Grade Pay as the Increment of every year and they make it counted. But as for as D.A is concerned nobody knows what will be the rate of increase in Dearness Allowance, as the AICPI Number for the Industrial Workers for the month of June 2011 will be announced probably on 31st July 2011.The amount of increase in Dearness Allowance will make their pay packet big. Unexpected increase in salary will decrease their expected financial burdens. This is the reason many of us curiously searching for the prediction over Dearness Allowance.

AICPIN-IW for the past three months have been already announced by Labour Bureau, Department Statistics, Government of India in its Web site. According to it AICPIN-IW for the month of January 2011 is 188, Febraury 2011-185 and March 2011 is 185. AICPIN-IW for the remaining three months ie April, May and June 2011 have yet to be announced. So this is not the right time to answer correctly to the question of what will be the Dearness Allowance from July 2011? But as per the past 9 months average of monthly All India Consumer Price Index (IW) with the base year 2001=100, we can expect that the hike in Dearness Allowance from July 2011 will be around 6% to 7%

Double benefit for salaried class


Deduction for contribution to the National Pension Scheme in the hands of the employer and exclusion of such contributions in computing exemption for Sec 80C is a morale booster for employer and employee.

The New Pension Scheme (NPS) was introduced by the Union Government in 2003. According to the new scheme, employees appointed on or after January 1, 2004 will contribute 10 per cent of their Pay and Dearness Allowance to the Pension Fund Regulatory and Development Authority under the Ministry of Finance. An equal amount will be contributed by the Centre. The scheme is mandatory for Government employees, but optional for other citizens of India. NPS merely declared that tax benefits would be applicable as per the Income Tax Act 1961 as amended from time to time.

THE NEW SECTION 36(1)

The Finance Act, 2011 has inserted a new Section 36 (1)(iva) with effect from assessment year 2012-13 to provide that an assessee will get a deduction in respect of contribution towards a pension scheme referred in Section 80CCD of the Act on account of an employee up to 10 per cent of the salary of the employee in the previous year. For this purpose, ‘salary’ includes DA, if the terms of ‘employment’ so provide, but excludes all other allowances and perquisites.

Currently, contribution made by an employer towards a recognised provident fund, an approved superannuation fund or an approved gratuity fund is allowable as a deduction from business income under Section 36, subject to certain limits.

However contribution made by an employer to the NPS is not allowed as a deduction. The newly inserted clause provides that any sum paid by the assessee as an employer by way of contribution towards the pension scheme on account of an employee to the extent it does not exceed 10 per cent of the salary of the employee in the previous year, shall be allowed as deduction in computing the income under the head ‘Profits and gains of business or profession’.

No doubt, such deduction would have been available under Section 37. The matter, however, is placed beyond doubt by the new Section. It should, however, be noted that deduction would be available only upon actual payment. The term ‘employee’ will include all employees including Director-employees. The limit of 10 per cent will apply to each employee individually. The Finance Act has also amended Section 40A (9) for this purpose.

LIMITS ON DEDUCTION

Section 80CCE provides that the aggregate amount of deduction under Section 80CCC and 80CCD shall not exceed Rs 1 lakh. The Finance Act, 2011 provides that contribution made by the Central Government or any other employer to NPS shall be excluded while computing the limit of Rs 1,00,000. The contribution by the employee to the NPS will be subject to the limit of Rs 1,00,000.

At the same time, deduction in respect of contributions by the Central Government or any other employer to NPS available under Section 80CCD (2) will not be subject to the limit specified in Section 80CCE. This provides a leeway for employees to seek a restructuring of the pay. Employers may be willing to include the contribution to the NPS in the pay package and claim 10 per cent of the salary as deduction. Depending on the pay scales, such restructuring may offer a benefit to both the employer and the employee.

The Employees Provident Fund Organisation has within its fold 4.72 crore subscribers. They get interest income of 9.5 per cent on PF deposits for 2010-11. There is also a move to increase the rate of interest .

WAIVER FOR PF INTEREST

In this context, the decision of the Income-Tax Department to grant an exemption from tax on the interest income on PF deposits will come as double bonanza for the subscribers.

Deduction for contribution to the NPS in the hands of the employer and the exclusion of such contributions in the hands of the employees in computing the exemption under Section 80C will mean a morale booster for the employer and the employee.

A caveat will be in order. The NPS has been challenged before the Central Administration Tribunal, as unconstitutional and inequitable by the Dakshin Railway Employees Union. The challenge is to the mandatory nature of the NPS in the case of government employees.

There is apparent discrimination between those who joined service before January 1, 2004 and those who joined later. The matter is pending before CAT

source:Business Line
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