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ESI : Employees State Insurance

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Divya Singhvi

Employee State Insurance
ESIC
Income from salary
Income Tax

The ESI scheme is managed by the Employees’ State Insurance Corporation (ESIC). The scheme provides medical and financial assistance to the employees and their families.

What is ESI?

The ESI scheme is managed by the Employee State Insurance Corporation a government body, and it is governed by the ESI Act 1948. It protects the employee in the case of sickness, disability, physical injury, and more. Moreover, it provides the working individual and his family with medical facilities. Both the employer and employee contribute to ESI and enable Indian employees to take part in a self-financed, healthcare, insurance fund.

ESI Applicability

An individual should meet certain criteria set by the committee to avail the benefits. ESI Scheme shall be applicable to:

ESI Wage Limit

The existing wage limit of the employee is ₹21,000 per month and if the employee has any disability, the wage limit for coverage is ₹25,000 per month.

There are exemptions to the rule in the case of daily average wages of INR 137. They do not have to contribute to the scheme from their wages. Only the employer’s contribution is paid for such people.

ESI Registration

The registration for employers under the ESI scheme is completely online. Here’s a step by step guide to the ESI registration online:

Documents Required for ESI registration

Returns to be filed every year post registration

After the registration, ESI Returns have to be filed twice a year. Documents required for ESI Returns are listed below:

Return Filing Process

On successful registration of the establishment, the employer can file returns online. The login credentials will be available once registered. The same will be required for the online filing of returns. The half-yearly return of ESI for the period April to September is due by 12th November, and October to March is due by 12th May.

In order to file ESI returns online, the employer must follow the below-mentioned procedure:

  1. The employer must log in to the official website using login credentials

    Once he is able to log in to ESIC Portal, there is a list of actions that are available.

  2. To file the return, the employer must first verify if all the employee details are up to date and then file the return

    The employer must then fill the bank details and submit them to file the returns.

  3. The employer can go to the ‘List of Actions’ and ‘Generate Challan’

    You can download the challan and document it for future reference and inspections.

Consequences of non or Late Payment of Employees Contribution

Non-payments, delayed payments, or falsifying payments under ESI Act may attract imprisonment for a period extending up to 2 years and a fine up to ₹5,000. An employer who fails to pay the contribution within the time limit specified in the regulation shall be liable to pay simple interest at the rate of 12% per annum in respect of each day of delay or default in payment of contribution.

Penalty for Non-Payment or Delayed Payment of Contribution

The ESI Corporation may levy and recover damages as per the Regulations, at the following rates, not exceeding the amount of contribution payable for default or delay in payment of the contribution.

Period of delay Rate of damages in % p.a
Less than 2 months 5%
2 to 4 months 10%
4 to 6 months 15%
6 months and above  25%

The employer will be liable for prosecution under Section 85(a) for the first time, and if the employer repeats the offense, he will be liable for enhanced punishment for every repetition.

Wages Definition

The definition of wages under Section 2(22) under the ESI Act, 1952 states that it means all remuneration paid or payable in cash to an employee if the terms of the contract of employment were fulfilled. Some of the inclusions and exclusions from the wage component are as follows:

Inclusions Exclusions
Basic Pay Entertainment Allowance
Dearness Allowance Encashment of leave and gratuity 
House Rent Allowance  Retrenchment Compensation
City Compensatory Allowance Deduction of health insurance
Medical Allowance Tax Deductions
Meal allowance
Any other special allowances
Incentives (including sales commission)
Attendance and Overtime Payments
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ESI Calculation

An employer is liable to pay his contribution in respect of every employee and deduct employees contribution from wages. He shall pay these contributions at the below-specified rates to the Corporation within 15 days of the last day of the Calendar month in which the contributions fall due. The same can be deposited online or to authorized designated branches.

Contributor Contributions
Employee 0.75% of wages paid/payable
Employer 3.25% of wages paid/payable

Example

Let us say Mr. Ansh having wages of Rs. 24,000 works in a processing unit. The contribution will be as follows:
Employee Contribution – 0.75% * 24,000 = 180
Employer Contribution – 3.25% * 24,000 = 780
So a total contribution of INR 960 will be made. The onus of deducting the contribution and depositing the same is on the employer.

Contribution Period and Benefit Period

There are two contribution periods each of six months duration and two corresponding benefit periods also of six months duration as under:

Contribution Period Cash Benefit Period
1st April to 30th Sept From 1st Jan of the following year to 30th June
1st Oct to 31st March of the year following From 1st July to 31st December

FAQ

Can I claim an amount in ESI if I take treatment in private?

As mandated by the ESI Act, treatment has to be taken only from the ESIC hospitals or dispensaries. However, in case of emergency, if the treatment is taken from a private hospital, you can raise a claim with the ESIC subject to ESIC approval.

After resignation ESIC card is valid or not? and how long ESIC benefits could be taken after resigning a job?

For medical treatment, ESIC card is valid from the first date of insurable employment to last date of the corresponding benefit period. However, for cash benefits you need minimum contribution period, if you have minimum contribution period then you can avail ESIC cash benefits in the benefit period.

Can I reactivate ESIC card?

You need to give your old ESIC number to your new employer to reactivate your ESI Pehchan card. Your ESIC card will be reactivated when your new employer pays your ESIC contribution.

Can I withdraw the ESI amount?

ESI is a premium paid for medical benefits. If no benefit is obtained from it, there is no option available to withdraw amount from ESI Account.

Who administers the ESI Scheme?

The ESI Scheme is administered by a statutory corporate body called the Employees’ State Insurance Corporation (ESIC).

How does the scheme help the employees?

The scheme provides full medical care to the employee registered under the ESI Act, 1948 during the period of his incapacity, restoration of his health and working capacity. It provides financial assistance to compensate the loss of his/ her wages during the period of his abstention from work due to sickness, maternity and employment injury. The scheme provides medical care to his/her family members also.

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