Any income such as Basic Pay, Dearness Allowance, House Rent Allowance, Conveyance, and Overtime are considered for ESI calculation.
Note: ESI monthly wage threshold is increased from Rs. 15,000/- to Rs. 21,000/- effective from 1st Jan 2017.
To create Employees' ESI Deduction Pay Head
1. Go to Gateway of Tally > Payroll Info. > Pay Heads > Create.
2. Enter the name of the Pay Head in the Name field.
3. Select Employees' Statutory Deductions as the Pay head type from the List of Pay Head Types.
4. Select Employee State Insurance in the Statutory Pay Type field.
5. Select Current Liabilities from the List of Groups in the Under field.
6. By default, Affect net salary is set to Yes. Type No, if you do not want this component to be included in the pay slip.
7. By default, the pay head component name entered in the Name field appears in the pay slip. Enter the Name to appear in Payslip if you want to change the default pay head component name.
8. By default, the Calculation type field is set to As Computed Value, and the Calculation period field is set to Months.
9. Select Normal Rounding from the list of Rounding Methods and type 1 as the rounding Limit.
10. In the Compute field, select On Specified Formula from the Methods of computation list. The Compute sub-screen appears.
11. In the Pay Head column:
● Select Basic Pay from the List of Pay Heads.
● Select Add Pay Head to add each pay head that is used for ESI calculation.
● Select End of List to return to Pay Head Creation.
12. In the Effective Date field, enter the desired date when the ESI Deduction begins.
13. By default, the Slab Type field is set to Percentage.
14. Enter the percentage value in the Value Basis field.
15. Similarly, enter the From Amount, Amount Upto, Slab Type and Value details for the next slab.
Note: You cannot specify the amount while creating the Pay Head for ESI. The system retrieves the amount from the Statutory Master file.
16. Press Enter to accept.
Note: Add Basic Pay, HRA, Conveyance and Overtime before adding the ESI Deduction pay head in the Salary Details screen because the calculation for ESI is dependant on these pay heads.
Also, when multiple pay heads are added into the formula for calculation, ensure that the independent pay heads appear first, and the dependent pay heads, later. For example, HRA is dependant on Basic Pay and as a result, Basic Pay should appear first in the list, followed by HRA.
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