Tag: University of Mumbai BMS Notes

The term human resources imply that people have the capabilities that drives organisational performance along with other resources like machinery, money, materials and information. Human resource management is designing management systems to ensure that human talent is used effectively and efficiently to accomplish the organization goals. HR professionals perform variety of roles. They perform functions at strategic level, EEO (Equal Employment Opportunity), staffing, ensures employee and labour relations with management, risk management and worker participation, rewards and compensation, talent management, etc. The focus of study at this stage is on the role of HR professionals in compensation management.

Following are the roles performed by a HR professional:

1. Develop a compensation philosophy: Compensation philosophies can be developed considering two philosophy:

(i) entitlement philosophy

(ii) performance philosophy.

The entitlement philosophy assumes that individuals who have worked another year are entitled to pay increases, with little regard for performance differences. While performance philosophy assumes that compensation changes, if performance changes. Organisations working under this philosophy do not guarantee additional or increased compensation simply for completing another year of service.

2. Develop a programme outline: As a part of compensation] plan, a HR professional will design a programme outline which very clearly will indicate the objective of the compensation programme. They should clearly prescribe the process of how a particular compensation strategy will be implemented or executed by the organisation. The objectives will also consider the budget allotted for a particular financial year on compensation and rewards.
3. Job evaluation: Job evaluation aims to determine a job’s relative worth. The job evaluation is a formal and systematic comparison of jobs to determine the worth of one job relative to another. Rank the jobs within each senior vice presidents and manager’s department, and then rank jobs between and among departments. HR professional verifies the ranking by comparing the industry market data and prepares the flowchart of all ranks for each department for easy assessment and interpretation of job.
4. Conduct a job analysis of all positions: One of the most important functions performed by the HR professional is to do the job analysis of all the positions in a hierarchy. HR executives gathers information from the senior departmental heads of marketing, finance, sales, administration, production and other appropriate departments to determine the organisational structure and primary functions of each. Interviewing the department managers and the employees who actually executes it will be helpful in determining the specific job functions. Develop a model of job descriptions which will help in better evaluation of job.
5. Determine job grades: After job evaluation, jobs are further classified into job grades by establishing various levels like senior, junior, intermediate and beginners. HR executives at this stage also determine the number of pay grades, or monetary range of a position at a particular level, within each department.
6. Determine an appropriate salary structure: Job grading helps in classification of jobs which could further be helpful designing a salary structure. Various components of a salary structure is analysed with the market rates and company’s philosophy. If it gets satisfied, then the compensation committee reviews it, makes adjustments if required and goes for further approval from top level management.
7. To obtain top executives’ approval of the basic salary programme: After getting approval from HR committee, HR department develops and presents the cost impact studies that project the expense of bringing the present staff upto the proposed levels or adding any compensation benefits into the present salary structure.
8. Communicate the final programme to employees and managers: Once the salary structure is approved and finalized by compensation committee, HR Executives develop a plan for communicating the new programme to employees using slide shows or movies, literature, handouts, etc.; make presentations to managers and employees; implement the programme; design and develop detailed systems, procedures and forms; work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers; and execute the compensation programme.
9. Monitor the programme: Organisation’s objective of effective compensation plan is to motivate employees to give their best at work. HR monitors feedback from managers, make changes where necessary, find flaws or problems in the programme and adjust or modify where necessary.

Wealth management is a consultative process. It involves consultations with affluent clients, discussions on their financial needs and goals.

Wealth management (WM) or wealth management advisory (WMA) is a form of investment management and financial planning that provides solutions to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high-net-worth (UHNW). It is a discipline which incorporates financial planning, portfolio management and a number of aggregated financial services offered by a complex mix of investment banks, asset managers, custodial banks, retail banks, and financial planners. There is no equivalent of a stock exchange to consolidate the allocation of investments and promulgate fund pricing and as such it is considered a fragmented and decentralised industry.

HNW individuals, small-business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can have backgrounds as independent Chartered Financial Consultants, Certified Financial Planners or Chartered Financial Analysts (in the United States), Certified International Investment Analysts, Chartered Strategic Wealth Professionals (in Canada), Chartered Financial Planners (in the UK), or any credentialed (such as MBA) professional money managers who work to enhance the income, growth and tax-favored treatment of long-term investors.

The term “wealth management“ occurs at least as early as 1933. It came into more general use in the elite retail (or “Private Client”) divisions of firms such as Goldman Sachs or Morgan Stanley (before the Dean Witter Reynolds merger of 1997), to distinguish those divisions’ services from mass-market offerings, but has since spread throughout the financial-services industry. Family offices that had formerly served just one family opened their doors to other families, and the term Multi-family office was coined. Accounting firms and investment advisory boutiques created multi-family offices as well. Certain larger firms (UBS, Morgan Stanley and Merrill Lynch) have “tiered” their platforms with separate branch systems and advisor-training programs, distinguishing “Private Wealth Management” from “Wealth Management”, with the latter term denoting the same type of services but with a lower degree of customization and delivered to mass affluent clients. At Morgan Stanley, the “Private Wealth Management” retail division focuses on serving clients with greater than $20 million in investment assets while “Global Wealth Management” focuses on accounts smaller than $10 million.

In the late 1980s, private banks and brokerage firms began to offer seminars and client events designed to showcase the expertise and capabilities of the sponsoring firm. Within a few years a new business model emerged, Family Office Exchange in 1990, the Institute for Private Investors in 1991, and CCC Alliance in 1995. These companies aimed to offer an online community as well as a network of peers for ultra-high-net-worth individuals and their families. These entities have grown since the 1990s, with total IT spending (for example) by the global wealth management industry predicted to reach $35bn by 2016, including heavy investment in digital channels.

Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers who design services to focus on high-net-worth clients. Large banks and large brokerage houses create segmentation marketing-strategies to sell both proprietary and non-proprietary products and services to investors designated as potential high-net-worth clients. Independent wealth-managers use their experience in estate planning, risk management, and their affiliations with tax and legal specialists, to manage the diverse holdings of high-net-worth clients. Banks and brokerage firms use advisory talent-pools to aggregate these same services.

The Great Recession of the late 2000s caused investors to address concerns within their portfolios. For this reason wealth managers have been advised that clients have a greater need to understand, access, and communicate with advisers about their situation.

The CFA Institute curriculum on private-wealth management indicates that two primary factors distinguish the issues facing individual investors from those facing institutions:

• Time horizons differ. Individuals face a finite life as compared to the theoretically/potentially infinite life of institutions. This fact requires strategies for transferring assets at the end of an individual’s life. These transfers are subject to laws and regulations that vary by locality and therefore the strategies available to address this situation vary. This is commonly known as accumulation and decumulation.
• Individuals are more likely to face a variety of taxes on investment returns that vary by locality. Portfolio investment techniques that provide individuals with after tax returns that meet their objectives must address such taxes.

Advantages of Wealth Management

• Wealth management plans are tailored to client-specific needs. The financial products are combined to effectively reach the financial goals of the client.
• The advisory services entail the handling of client sensitive information. Investment advisors have to maintain the confidentiality of information obtained during the course of financial planning and advisory services.
• A wealth management advisor utilizes the diverse financial disciplines such as financial and accounting, and tax services, investment advice, legal or estate planning, and retirement planning, to manage an affluent client’s wealth as a bundle of services.
• Wealth management practices and the corresponding services may differ from one location to another, depending on the state of the economy, per capita income and saving habits of the people.
• Wealth management is different from investment advice. The former is a more holistic approach in which a single manager coordinates all the services needed to manage their money and plan for the client’s needs, including the current and future needs of the client’s family.
• While most wealth managers provide services in any financial field, some wealth managers specialize in specific areas of finance. The specialisation would be based on the area of expertise of the wealth manager.
• Wealth management services are usually appropriate for wealthy individuals who have a broad array of diverse needs. The advisors are high-level professionals and experts.
• Wealth managers may work individually as a single person, or as part of a small-scale business or as part of a larger firm. Based on the nature of the business, wealth managers may function under different titles, which include financial consultant or financial adviser. A client may receive services from a single designated wealth manager or may have access to the members of a specified wealth management team.

Wealth managers perform the following tasks:

• Spotting investment opportunities.
• Providing curated estate planning services.
• Providing tax planning services.
• Buying and selling of stocks.
• Advising clients about financial products and services.
• Managing portfolios.
• Assessment of risks associated with decisions

Sections 22 to 27 of the Act deal with the subject of taxation of “Income from house property”.

Section 22: Annual value of property is taxable under the head “Income from House property”.

Section 23: Determination of ‘Annual value’

Section 24: Allowable deductions from “Income from House property”

Section 25: Amounts not deductable from “Income from House property”

Section 25A: Special Provision for arrears of rent and unrealised rent received subsequently.

Section 26: Property owned by co-owners

Section 27: Situations where the ownership shall be deemed, for taxing income from house property

Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto. The term ‘buildings’ includes any building- office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. as long as they are not used for business or profession by owner. Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.

Determination of ‘annual value’ of the property [Sec. 23]

‘Annual Value’ is inherent capacity of property to yield income. The inherent capacity has been defined as the sum for which the property might reasonably be expected to be let from year to-year. It is not necessary, that the property should be actually let. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out. Under Section 23 (1) of the Income tax Act, annual value of property shall be deemed to be the following:

1. The sum for which the property might reasonably be expected to be let out from year to year;
2. Where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable

iii. Where the property or part of the property is let and was vacant during the whole or any part of the previous year and, owing to such vacancy, the actual rent received or receivable by the owner in respect thereof is less than the sum referred to clause (a) the amount so received or receivable.

4.1 Annual value to be calculated as under:

1. Where RC Act applicable

(i) Standard rent under the Rent Control Act; or

(ii) Actual rent received Whichever is higher

2. Where RC Act is not applicable:

(i) Municipal Value or

(ii) Fair Rent or

(iii) Rent Received whichever is higher

Sub-section 2: The annual value of a house or part of a house shall be taken as nil if the property

• is occupied by the owner himself for the purpose of his own residence or,
• if such house or part thereof cannot be occupied by him because his employment, business or profession is carried on at any other place and, he has to reside at that other place in a building that does not belong to him.

Deductions permitted from Income from house property [Sec. 24]

Amount left after deduction of municipal taxes is net annual value. Following permissible deductions are allowed from Annual Value in cases of let out properties (Section 24).

(1) Deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the taxpayer (s.24(a)). No other allowance for depreciation, repairs, maintenance etc. would be allowable.

(2) Interest on borrowed capital (s.24(b)). Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.

As per section 25, interest chargeable under the Income tax Act, which is payable outside India on which tax has not been paid or deducted (and in respect of which there is no person in India, who may be treated as an agent under section 163) shall not be deducted in computing the income chargeable under the head “Income from house property”.

Income from house property is wholly exempt from tax in following situations

1. Income from any farmhouse forming part of agricultural income;
2. Annual value of any one palace in the occupation of an ex-ruler; Section 10(19A)
3. Property Income of a local authority; Section 10(20)
4. Property income of any registered trade union; Section 10(24)
5. Property income of a member of a Scheduled Tribe;
6. Property income of a statutory corporation or an institution or association financed by the Government for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
7. Property income of a corporation, established by the Central Govt. or any State Govt. for promoting the interests of members of a minority group;
8. Property income of a cooperative society, formed for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
9. Property Income, derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities;

• Property income of an institution for the development of Khadi and village Industries;’
• Self-occupied house property of an assessee, which has not been rented throughout the previous year;
• Income from house property held for any charitable purposes;
• Property Income of any political party. Section 13A

Section 26

Co-ownership: In case where property is owned jointly by two or more persons, and where shares of such joint owners are definite and ascertainable, the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property the rent/ annual value will be taken in proportion to his share in the property. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. However, where the share is not definite, the income of the property shall be assessed as that of an Association of persons.

Deemed ownership (Section 27)

In the following situations the ownership shall be deemed for taxing income from house property in view of Section 27 of the Act:

1. When house property is transferred to spouse (otherwise than in connection with an agreement to live apart) or minor child (not being a married daughter) without adequate consideration (Section 2 7(i))
2. In the case of holder of an impartible estate (Section 27(ii))

iii. A member of a cooperative society, company etc. to whom a building or part thereof has been allotted or leased under a house building scheme (Section 27(iii)). Thus, when a flat is allotted by a cooperative society or a company to its members/shareholders who enjoy the flat, technically the co-operative society/company may be the owner. However, in such situations the allottees are deemed to be owners and it is the allottees who will be taxed under this head.

iii a. A person who is allowed to take or retain possession of any building (or part thereof) in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, is deemed as the owner of that building (or part thereof) [Sec. 27 (iiia)].

1. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building (or part thereof) by virtue of any such transaction as is referred to in section 269UA(f) [i.e. if a person takes a house on lease for a period of 12 months or more, is deemed as the owner of that building or part thereof] [Sec. 27 (iiib)].

(v) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property.[Sec. 27 (vi)].

Profit & Gain from Business and Profession (S. 28, 30,31,32, 35, 35D,36,37, 40, 40A and 43B)

In this Article we have discussed briefly Different Provisions Applicable to Income from Business and Profession at one place.

Profits and Gains from Business and Profession

1. Chargeability:

The following incomes are chargeable to tax under the head Profit and Gains from Business or Profession:

S. No.	Section	Particulars
1.	28(i)	Profit and gains from any business or profession carried on by the assessee at any time during the previous year
2.	28(ii)	Any compensation or other payment due to or received by any specified person
3.	28(iii)	Income derived by a trade, professional or similar association from specific services performed for its members
4.	28(iiia)	Profit on sale of a license granted under the Imports (Control) Order 1955, made under the Import Export Control Act, 1947
5.	28(iiib)	Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government of India
6.	28(iiic)	Any duty of Customs or Excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.
7.	28(iiid)	Profit on transfer of Duty Entitlement Pass Book Scheme, under Section 5 of Foreign Trade (Development and Regulation) Act, 1992
8.	28(iiie)	Profit on transfer of Duty Free Replenishment Certificate, under Section 5 of Foreign Trade (Development and Regulation) Act 1992
9.	28(iv)	Value of any benefits or perquisites arising from a business or the exercise of a profession.
10.	28(v)	Interest, salary, bonus, commission or remuneration due to or received by a partner from partnership firm
11.	28(va)	a) Any sum received or receivable for not carrying out any activity in relation to any business or profession; or b) Any sum received or receivable for not sharing any know-how, patent, copyright, trademark, licence, franchise, or any other business or commercial right or information or technique likely to assist in the manufacture of goods or provision of services.
12.	28(vi)	Any sum received under a Key man Insurance policy including the sum of bonus on such policy
12A.	28(via)	Any profit or gains arising from conversion of inventory into capital asset.
13.	28(vii)	Any sum received ( or receivable) in cash or in kind, on account of any capital assets (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital assets has been allowed as a deduction under section 35AD
14.	Explanation to section 28	Income from speculative transactions. However, it shall be deemed to be distinct and separate from any other business.
15.	41(1)	Remission or cessation of liability in respect of any loss, expenditure or trading liability incurred by the taxpayers Recovery of trading liability by successor which was allowed to the predecessor shall be chargeable to tax in the hands of successor. Succession could be due to amalgamation or demerger or succession of a firm succeeded by another firm or company, etc. Any liability which is unilaterally written off by the taxpayer from the books of accounts shall be deemed as remission or cessation of such liability and shall be chargeable to tax.
16.	41(2)	Depreciable asset in case of power generating units, is sold, discarded, demolished or destroyed, the amount by which sale consideration and/ or insurance compensation together with scrap value exceeds its WDV shall be chargeable to tax.
17.	41(3)	Where any capital asset used in scientific research is sold without having been used for other purposes and the sale proceeds together with the amount of deduction allowed under section 35 exceed the amount of the capital expenditure, such surplus or the amount of deduction allowed, whichever is less, is chargeable to tax as business income in the year in which the sale took place.
18.	41(4)	Where bad debts have been allowed as deduction under Section 36(1)(vii) in earlier years, any recovery of same shall be chargeable to tax.
19.	41(4A)	Amount withdrawn from special reserves created and maintained under Section 36(1)(viii) shall be chargeable as income in the previous year in which the amount is withdrawn.
20.	41(5)	Loss of a discontinued business or profession could be adjusted from the deemed business income as referred to in section 41(1), 41(3), (4) or (4A) without any time limit.
20A.	43AA	Any foreign exchange gain or loss arising in respect of specified foreign currency transactions shall be treated as income or loss. Such gain or loss shall be computed in accordance with notified ICDS [subject to Section 43A]
21.	43CA	Where consideration for transfer of land or building or both as stock-in-trade is less than the stamp duty value, the value so adopted shall be deemed to be the full value of consideration for the purpose of computing income under this head. However, no such adjustment is required to be made if value adopted for stamp duty purposes does not exceed 110% of the sale consideration.
21A.	43CB	The profits and gains arising from construction contract or a contract for providing service is to be determined on the basis of percentage completion method, in accordance with the notified ICDS. In case of contract for providing services with duration of not more than 90 days, the profits and gains shall be determined on basis of project completion method. While as in case of contract for providing services with indeterminate number of acts over a specified period of time shall be determined on basis of straight line method.
22.	43D	As per RBI Guidelines, Interest on bad and doubtful debts of Public Financial Institution or Scheduled Bank or [a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank] or State Financial Corporation or State Industrial Investment Corporation, shall be chargeable to tax in the year in which it is credited to Profit and Loss A/c or year in which it is actually received, whichever happens earlier. With effect from Assessment Year 2020-21, the Finance (No. 2) Act, 2019 has covered ‘Deposit Taking NBFCs’ and ‘Systemically Important Non-deposit Taking NBFCs’ in the ambit of section 43D. Hence, such NBFCs shall be able to recognize interest on bad and doubtful debts in the year in which it is credited to Profit and Loss A/c or year in which it is actually received, whichever happens earlier. Deposit Taking NBFC’ means a NBFC which is accepting or holding public deposits and is registered with the RBI. ‘Systemically Important Non-deposit Taking NBFC’ means a NBFC which is not accepting or holding public deposits and having total assets of not less than Rs. 500 crore as per the last audited balance sheet and is registered with the RBI.
23.	43D	Similarly as per NHB Guidelines, Interest on bad and doubtful debts of housing finance company, shall be chargeable to tax, in the year it is credited to P & L A/c or year in which it is actually received by them, whichever is earlier.
24	—	Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Govt. or State Govt. or any authority or body or agency to the assessee would be included in definition of income as referred to in Section 2(24). However, in the following cases subsidy or grant shall not be treated as income: i) The subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of Section 43; ii) The subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be.

2. Deductions under Sections 30 to 37

Amount deductible, while computing, Profits and Gains of Business or Profession are:

Section	Nature of expenditure	Quantum of deduction	Assessee
30	Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises	Actual expenditure incurred excluding capital expenditure	All assessee
31	Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture	Actual expenditure incurred excluding capital expenditure	All assessee
32(1)(i)	Depreciation on i) buildings, machinery, plant or furniture, being tangible assets; ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, being intangible assets	Allowed at prescribed percentage on Straight Line Method for each asset Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.	Assessees engaged in business of generation or generation and distribution of power Note: Taxpayers engaged in the business of generation or generation and distribution of power shall have the option to claim depreciation either on basis of straight line basis method or written down value method on each block of asset.
32(1)(ii)	Depreciation on i) buildings, machinery, plant or furniture, being tangible assets; ii) know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature, being intangible assets	Allowed at prescribed percentage on WDV method for each block of asset Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, the deduction in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset.	All assessees
32(1)(iia)	Additional depreciation on new plant and machinery (other than ships, aircraft, office appliances, second hand plant or machinery, etc.). (subject to certain conditions)	Additional depreciation shall be available @20 % of the actual cost of new plant and machinery. Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, then deduction of additional depreciation would be restricted to 50% in the year of acquisition and balance 50% would be allowed in the next year	All assessee engaged in – manufacture or production of any article or thing; or – generation, transmission or distribution of power (if taxpayer is not claiming depreciation on basis of straight line method)
Proviso to Section 32(1)(iia)	Additional depreciation on new plant and machinery (other than ships, aircraft,office appliances, second hand plant or machinery, etc.)) (Subject to certain conditions)	Additional depreciation shall be available @35 % of the actual cost of new plant and machinery. Provided that where an asset is acquired by the assessee during the previous year and is put to use for a period of less than one hundred and eighty days in that previous year, then deduction of additional depreciation would be restricted to 50% of actual cost in the year of acquisition and balance 50% would be allowed in the next year Note: 1. Manufacturing unit should be set-up on or after 1st day of April, 2015. 2. New plant and machinery acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020	All assessees- where an assessee sets up an undertaking or enterprise for production or manufacture of any article or thing in any notified backward area in state of the state of Andhra Pradesh, Bihar, Telangana or West Bengal.
32AC	Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company during the previous year exceeds Rs. 25/100 Crores, as the case may be.(Subject to certain conditions)	15% of actual cost of new asset	Company engaged in business or manufacturing or production of any article or thing
32AD	Investment allowance for investment in new plant and machinery if manufacturing unit is set-up in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal (Subject to certain conditions)	Investment allowance shall be available @15 % of the actual cost of new plant and machinery in the year of installation of new asset. Note:- 1) New asset should be acquired and installed during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020. 2) Manufacturing unit should be set-up on or after 1st day of April, 2015. 3) Deduction shall be allowed under Section 32AD in addition to deduction available under Section 32AC if assessee fulfils the specified conditions	All assessee who acquired new plant and machinery for the purpose of setting-up manufacturing unit in the notified backward area in the state of Andhra Pradesh, Bihar, Telangana or West Bengal
33AB	Amount deposited in Tea / Coffee/ Rubber Development Account by assessee engaged in business of growing and manufacturing tea / Coffee / Rubber in India	Deduction shall be lower of following: a) Amount deposited in account with National Bank for Agricultural and Rural Development (NABARD) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme; or b) 40% of profits from such business before making any deduction under section 33AB and before adjusting any brought forward loss. (Subject to certain conditions)	All assessee engaged in business of growing and manufacturing tea/Coffee/Rubber
33ABA	Amount deposited in Special Account with SBI/Site Restoration Account by assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India	Deduction shall be lower of following: a) Amount deposited in Special Account with SBI/Site Restoration Account; or b) 20% of profits from such business before making any deduction under section 33ABA and before adjusting any brought forward loss. (Subject to certain conditions)	All assessee engaged in business of prospecting for, or extraction or production of, petroleum or natural gas or both in India
35(1)(i)	Revenue expenditure on scientific research pertaining to business of assessee is allowed as deduction (Subject to certain conditions).	Entire amount incurred on scientific research is allowed as deduction. Expenditure on scientific research within 3 years before commencement of business (in the nature of purchase of materials and salary of employees other than perquisite) is allowed as deduction in the year of commencement of business to the extent certified by prescribed authority.	All assessee
35(1)(ii)	Contribution to approved research association, university, college or other institution to be used for scientific research shall be allowed as deduction (Subject to certain conditions)	175% of sum paid to such association, university, college, or other institution is allowed as deduction. 150% of sum paid to such association, university, college or other institution is allowed as deduction (applicable from AY 2018-19) Note:- From the AY beginning on or after the 1st day of April, 2021, the deduction shall be equal to the sum so paid.	All assessee
35(1)(iia)	Contribution to an approved company registered in India to be used for the purpose of scientific research is allowed as deduction (Subject to certain conditions)	125% of sum paid to the company is allowed as deduction Entire sum paid to the company is allowed as deduction (applicable from AY 2018-19)	All assessee
35(1)(iii)	Contribution to approved research association, university, college or other institution with objects of undertaking statistical research or research in social sciences shall be allowed as deduction (Subject to certain conditions)	125% of sum paid to such association, university, college, or other institution is allowed as deduction Entire sum paid to such association, university, college or other institution is allowed as deduction (applicable from AY 2018-19)	All assessee
35(1)(iv) read with 35(2)	Capital expenditure incurred during the year on scientific research relating to the business carried on by the assessee is allowed as deduction (Subject to certain conditions)	Entire capital expenditure incurred on scientific research is allowed as deduction. Capital expenditure incurred within 3 years before commencement of business is allowed as deduction in the year of commencement of business. Note: i. Capital expenditure excludes land and any interest in land; ii. No depreciation shall be allowed on such assets.	All assessee
35(2AA)	Payment to a National Laboratory or University or an Indian Institute of Technology or a specified person is allowed as deduction. The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme.	200% of payment is allowed as deduction (Subject to certain conditions). 150% of payment is allowed as deduction (applicable from AY 2018-19) Note:- From the A.Y. beginning on or after the 1st day of April, 2021, the deduction shall be equal to the sum so paid.	All assessee
35(2AB)	Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction (Subject to certain conditions). Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.	200% of expenditure so incurred shall be allowed as deduction. 150% of expenditure so incurred shall be allowed as deduction (applicable from AY 2018-19) Note: i. Company should enter into an agreement with the prescribed authority for co-operation in such research and development and fulfils conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. ii. From the A.Y. beginning on or after the 1st day of April, 2021, the deduction shall be equal to the expend the so incurred.	Company engaged in business of bio-technology or in any business of manufacturing or production of eligible articles or things
35ABA	Capital expenditure incurred and actually paid for acquiring any right to use spectrum for telecommunication services shall be allowed as deduction over the useful life of the spectrum.	Deduction will be available in equal installments starting from the year in which actual payment is made and ending in the year in which spectrum comes to an end. Note: If spectrum fee is actually paid before the commencement of business, the deduction will be available from the year in which business is commenced.	All Assessee engaged in telecommunication services
35ABB	Capital expenditure incurred for acquiring any license or right to operate telecommunication services shall be allowed as deduction over the term of the license.	Deduction would be allowed in equal installments starting from the year in which such payment has been made and ending in the year in which license comes to an end.	All Assessee engaged in telecommunication services
35AC	Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project (Subject to certain conditions).	Actual payment made to prescribed entities. However, a company can also claim deduction for expenditure incurred by it directly on eligible projects. Note:- No deduction in any A.Y. commencing on or after the 1st day of April, 2018	All assessee. However, deduction for direct expenditure is allowed only to a company
35AD	Deduction in respect of `expenditure on specified businesses, as under: a) Setting up and operating a cold chain facility b) Setting up and operating a warehousing facility for storage of agricultural produce c) Building and operating, anywhere in India, a hospital with at least 100 beds for patients d) Developing and building a housing project under a notified scheme for affordable housing e) Production of fertilizer in India (Subject to certain conditions)	150% of capital expenditure incurred for the purpose of business is allowed as deduction provided the specified business has commenced its operation on or after 01-04-2012. 100% of capital expenditure will be allowed to be deducted from the assessment year 2018-19 onwards Note: If such specified businesses commence operations on or before 31-03-2012 but after prescribed dates, deduction shall be limited to 100% of capital expenditure. Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed if it is incurred in cash.	All assessee
35AD	Deduction in respect of expenditure on specified businesses, as under: a) Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network; b) Building and operating, anywhere in India, a hotel of two-star or above category; c) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation d) Setting up and operating an inland container depot or a container freight station e) Bee-keeping and production of honey and beeswax f) Setting up and operating a warehousing facility for storage of sugar g) Laying and operating a slurry pipeline for the transportation of iron ore h) Setting up and operating a semi-conductor wafer fabrication manufacturing unit i) Developing or maintaining and operating, or developing, maintaining and operating a new infrastructure facility (Subject to certain conditions)	100% of capital expenditure incurred for the purpose of business is allowed as deduction provided specified businesses commence operations on or after the prescribed dates. Note: No deduction of any capital expenditure above Rs 10,000 shall be allowed if the payment for such expenditure is made otherwise than by an account payee cheque/draft or ECS or through prescribed electronic mode of payment.	All assessee Note: Such deduction is available to Indian company in case of following business, namely;- i) Business of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network ii) Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.
35CCA	Payment to following Funds are allowed as deduction: a) National Fund for Rural Development; and b) Notified National Urban Poverty Eradication Fund	Actual payment to specified funds	All assessee
35CCC	Expenditure (not being cost of land/building) incurred on notified agricultural extension project for the purpose of training, educating and guiding the farmers shall be allowed as deduction, provided the expenditure to be incurred is expected to be more than Rs. 25 lakhs (Subject to certain conditions).	150% of the expenditure (Subject to certain conditions) Note:- 100% deduction shall be allowed from the 1st day of April, 2021	All assessee
35CCD	Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction (Subject to certain conditions).	150% of the expenditure (Subject to certain conditions) Note: (i) No deduction shall be allowed to a company engaged in manufacturing alcoholic spirits or tobacco products. (ii) 100% deduction shall be allowed for the AY beginning on or after the 1st day of April, 2021	Company engaged in manufacturing of any article or providing specified services
35D	An Indian company can amortize certain preliminary expenses (up to maximum of 5% of cost of the project or capital employed, whichever is more) (Subject to certain conditions and nature of expenditures)	Qualifying preliminary expenditure is allowable in each of 5 successive years beginning with the previous year in which the extension of undertaking is completed or the new unit commences production or operation.	Indian Company
35D	Non-corporate taxpayers can amortize certain preliminary expenses (up to maximum of 5% of cost of the project) (Subject to certain conditions and nature of expenditures)	Qualifying preliminary expenditure is allowable in each of 5 successive years beginning with the previous year in which the extension of undertaking is completed or the new unit commences production or operation.	Resident Non-corporate assessees
35DD	Expenditure incurred after 31-3-1999 in respect of amalgamation or demerger can be amortized by an Indian Company	Expenditure is allowed as deduction in five equal installments in 5 previous years starting with the year in which amalgamation or demerger took place.	Indian Company
35DDA	Expenditure incurred under Voluntary Retirement Scheme is allowed as deduction.	Each payment under VRS is allowed as deduction in five equal installments in 5 previous years.	All Assessee
35E	Qualifying expenditure incurred by resident persons on prospecting for the minerals or on the development of mine or other natural deposit of such minerals shall be allowed as deduction (Subject to certain conditions).	Eligible expenditure is allowed as deduction in ten equal installments in 10 previous years.	Resident persons
36(1)(i)	Insurance premium covering risk of damage or destruction of stocks/stores	Actual expenditure incurred	All Assessee
36(1)(ia)	Insurance premium covering life of cattle owned by a member of co-operative society engaged in supplying milk to federal milk co-operative society	Actual expenditure incurred	All Assessee
36(1)(ib)	Medical insurance premium paid by any mode other than cash, to insure employee’s health under (a) scheme framed by GIC of India and approved by Central Government; or (b) scheme framed by any other insurer and approved by IRDA	Actual expenditure incurred	All Assessee
36(1)(ii)	Bonus or commission paid to employees which would not have been payable as profit or dividend if it had not been paid as bonus or commission	Actual expenditure incurred	All Assessee
36(1)(iii)	Interest on borrowed capital (Subject to certain conditions)	Interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed as deduction. However, if capital is borrowed for acquiring an asset, then interest for any period beginning from the date on which capital was borrowed till the date on which asset was first put to use, shall not be allowed as deduction.	All Assessee
36(1)(iiia)	Discount on Zero Coupon Bonds (Subject to certain conditions)	Pro-rata amount of discount on zero coupon bonds shall be allowed as deduction over the life of such bond	Specified Assessee
36(1)(iv)	Employer’s contributions to recognized provident fund and approved superannuation fund [subject to certain limits and conditions]	Actual expenditure incurred	All Assessee
36(1)(iva)	Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee.	Actual expenditure not exceeding 10% of the salary* of the employee *Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission	All Assessee – Employer
36(1)(v)	Employer’s contribution towards approved gratuity fund created exclusively for the benefit of employees under an irrevocable trust shall be allowed as deduction (Subject to certain conditions).	Actual expenditure not exceeding 8.33% of salary of each employee	All Assessee – Employer
36(1)(va)	Deposit of employee’s contributions in their respective provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948	Actual amount received if credited to the employee’s account in relevant fund on or before due date specified under relevant Act	All Assessee – Employer
36(1)(vi)	Allowance in respect of animals which have died or become permanently useless (Subject to certain conditions)	Actual cost of acquisition of such animals less realization on sale of carcasses of animals	All Assessee
36(1)(vii)	Bad debts which have been written off as irrecoverable (Subject to certain conditions)	Actual bad debts which have been written off from books of accounts Note:- However, if amount of debt or part thereof has been taken into account in computing the income of assessee on basis of income computation and disclosure standards notified under Section 145(2) without recording the same in accounts then, such debt shall be allowed in the previous year in which such debt or part therof becomes irrecoverable. It shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts.	All Assessee
36(1)(viia)	Deductions for provision for bad and doubtful debts created by certain banks, financial institutions and non-banking financial company (Subject to certain conditions). Note Deduction in respect of bad debts actually written off under section 36(1)(vii) shall be limited to that amount of bad debts which exceed the provision for bad and doubtful debts created under section 36(1)(viia).	Deductions for provision for bad and doubtful debts shall be limited to following: (a) In case of scheduled and non-scheduled banks: Sum not exceeding aggregate of 8.5% of total income (before any deductions under this provision and Chapter VI-A) and 10% of aggregate average advances made by rural branches of such bank; (b) In case of Financial Institutions: Up to 5% of total income before any deductions under this provision and Chapter VI-A; and (c) In case of foreign banks: Up to 5% of total income before any deductions under this provision and Chapter VI-A (d) In case of non-banking financial company: Up to 5% of total income before any deduction under this provision and chapter VI-A	Banks, Public Financial Institutions, Non-banking financial company, State Financial Corporation, State Industrial Investment Corporations
36(1)(viii)	Deduction under this provisions is allowed to following entities in respect of amount transferred to special reserve account: a) Financial Corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India; or b) Public company registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of residential houses in India. [Subject to certain conditions]	Deduction shall be allowed to the extent of lower of following: a) Amounts transferred to special reserve account b) 20% of profits derived from eligible business c) 200% of paid-up capital and general reserve (on last day of previous year) minus balance in special reserve account (on first day of previous year)	Specified financial corporations or public company
36(1)(ix)	Expenditure incurred by a company on promotion of family planning amongst employees is allowed as deduction	1) Entire revenue expenditure is allowed as deduction 2) Capital expenditure shall be allowed as deduction in five equal installment in five years	Company
36(1)(xii)	Any expenditure incurred by a notified corporation or body corporate constituted or established by a Central, State or Provincial Act, for the objects and purposes authorized by the respective Act is allowed as deduction	Actual expenditure incurred (not being in the nature of capital expenditure)	Notified corporations
36(1)(xiv)	Contribution to Credit Guarantee Trust Fund for micro and small industries is allowed as deduction	Actual expenditure incurred	Public Financial Institutions
36(1)(xv)	Securities Transaction Tax paid	Actual expenditure incurred if corresponding income is included as income under the head profits and gains of business or profession	All Assessee
36(1)(xvi)	Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year is allowed as deduction	Actual expenditure incurred if corresponding income is included as income under the head profits and gains of business or profession	All Assessee
36(1)(xvii)	Amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane.	Deduction would be allowed the extent of lower of following: a) Actual purchase price of sugarcane, or b) Price of sugarcane fixed or approved by the Government	Co-operative society engaged in the business of manufacture of sugar
36(1)(xviii)	Marked to market loss or other unexpected loss as computed in accordance with notified ICDS	Actual losses incurred	All assessee
37(1)	Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession	Actual expenditure incurred	All Assessee
37(2B)	Expenditure on advertisement in any souvenir, brochure etc. published by a political party shall not be allowed as deduction	Not Allowed	All Assessee

3. Amount expressly disallowed under the Act

Section	Description
40(a)(i)	Any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return. Where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under first proviso to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
40(a)(ia)	Any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it was paid without deduction of tax at source or if tax was deducted but not deposited with the Central Government till the due date of filing of return. However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year. Where deductor has failed to deduct the tax and he is not deemed to be an assessee in default under first proviso to section 201(1), then it shall be deemed that the deductor has deducted and paid the tax on the date on which the payee has furnished his return of Income.
40(a)(ib)	Any sum paid or payable to a non-resident which is subject to a deduction of Equalisation levy would attract disallowance if such sum was paid without deduction of such levy or if it was deducted but not deposited with the Central Government till the due date of filing of return. However, where in respect of any such sum, Equalisation levy is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year. Note: This provision has beeninserted by the Finance Act, 2016, w.e.f. 1-6-2016
40(a)(ii)	Any sum paid on account of any rate or tax levied on the profits and gains of business or profession is not deductible
40(a)(iia)	Wealth-tax or any other tax of similar nature shall not be deductible
40(a)(iib)	Amount paid by way of royalty, license fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on (or any amount appropriated) a State Government undertaking by the State Government shall not be deductible.
40(a)(iii)	Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source is not deductible.
40(a)(iv)	Payments to provident fund or other funds for employees’ benefit shall not be deductible if no effective arrangements have been made to ensure deduction of at source from payments made from such funds to employees which shall be chargeable to tax as ‘salaries’.
40(a)(v)	Tax paid by the employer on non-monetary perquisites provided to employees is not deductible if the tax so paid is not taxable in the hands of employees by virtue of Section 10(10CC).
40(b)	Following sum paid by a partnership firm to its partners shall not be allowed to be deducted: 1) Salary, bonus, commission or remuneration paid to non-working partners; 2) Remuneration or interest paid to the partners is not in accordance with the terms of the partnership deed; 3) Remuneration or interest to partners is in accordance with the terms of the partnership deed but relates to any period prior to the date of the deed; 4) Interest to partners is in accordance with the terms of the partnership deed but exceeds 12% per annum; 5) Remuneration to partners is in accordance with the terms of the partnership deed but exceeds the following permissible limit: a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more; b) On the balance of the book profit – 60% of book profit
40(ba)	Interest, salary, bonus, commission or remuneration paid by Association of Persons or Body of Individuals to its members shall not be allowed as deduction (Subject to certain conditions).
40A(2)	Any payment to related parties (relatives, directors, partner, member of HUF/AOP, person who has substantial interest in business of the taxpayer, etc.) in respect of any expenditure shall be disallowed to the extent such expenditure is considered excessive or unreasonable by the Assessing Officer having regard to its fair market value.
40A(3)/(3A)	An expenditure, which is otherwise deductible under any provision of the Act, shall be disallowed if payment thereof has been made otherwise than by account payee cheque/bank draft or use of electronic clearing system through a bank account or through other prescribed electronic mode of payment and it exceeds Rs. 10,000 (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages) in a day (Subject to certain conditions and exceptions).
40A(7)	Provision for payment of gratuity to employees, other than a provision for contribution to approved gratuity fund, shall not be allowed as deduction (Subject to specified conditions). Gratuity actually paid (or payable) during the year and contribution to approved gratuity fund is allowed as deduction.
40A(9)	Any sum paid as an employer for setting up or as contribution to any fund, trust, company, AOP, BOI, Society or other institution (other than recognized provident fund, approved superannuation fund, approved gratuity fund or pension scheme referred to in section 80CCD) shall not be allowed as deduction deduction if such contribution or payment is not required by any law.
40(A)(13)	No deduction shall be allowed in respect of marked to market loss or other unexpected loss except as allowable under section 36(1)(xviii).

4. Expenses deductible on actual payment basis

The following expenses shall be allowed as deduction if such expenditure are actually paid on or before the due date of filing of return of income:-

Section	Particulars
43B(a)	Any Tax, Duty, Cess or Fees under any Law
43B(b)	Any contribution to Provident Fund/Superannuation Fund/Gratuity Fund/Welfare Fund
43B(c)	Bonus or Commission paid to employees which would not have been payable as profit or dividend
43B(d)	Interest on Loan or Borrowings from Public Financial Institutions/State Financial Institutions etc.
43B(da)	Interest on loan from a deposit taking NBFC or systemically important non-deposit taking NBFC
43B(e)	Interest on loan or advance from bank
43B(f)	Payment of Leave Encashment
43B(g)	Sum payable to the Indian Railways for the use of railway assets.

5. Other provisions

Section	Particulars	Provision
42	Special allowance in case of business of prospecting etc. for mineral oil (including petroleum and natural gas) in relation to which the Central Government has entered into an agreement with the taxpayer for the association or participation (Subject to certain conditions).	Following deductions shall be allowed as deductions: a) Any infructuous exploration expenditure b) Expenditure on drilling or exploration activities or services, etc. c) Allowance in relation to depletion of mineral oil, etc.
43A	Special provisions consequential to changes in rate of exchange of Currency (Subject to certain conditions).	Any increase or decrease in the liability incurred in foreign currency (to acquire a capital asset) pursuant to fluctuation in the foreign exchange rates shall be adjusted with the actual cost of such asset only on actual payment of the liability.
43C	Acquisition of any asset (except stock-in-trade) by the taxpayer in the scheme of amalgamation or by way of gift, will etc.	Cost of acquisition of any asset (except stock-in-trade) acquired by the taxpayer in the scheme of amalgamation or by way of gift, will etc. from the transferor (who sold it as stock-in-trade) shall be the cost of acquisition in the hands of transferor as increased by cost of any improvement made

Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.

Types of Taxable Income

Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:

1. Employee compensation and benefits

These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.

2. Investment and business income

For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.

3. Miscellaneous taxable income

This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insurance, and canceled debts. Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.

Taxable vs. Non-Taxable Income

Taxable income includes all types of compensation, whether they are in the form of cash or services, as well as property. Unless a particular income is expressly exempted by law from tax liability, every income is taxable and should be reported in the income tax return. Examples include:

• Salary
• Wages
• Interest received from banks
• Stock options
• Dividends
• Unemployment compensation
• Notes received
• Rents from personal property

Non-taxable income, on the other hand, refers to income that is received but that is not subject to taxation. However, even if such forms of compensation cannot be taxed, they still need to be reflected in the tax return. Examples of non-taxable income are:

• Gifts
• Inheritance
• Cash rebates from items bought
• Child support payments
• Welfare benefits
• Meals and lodging

Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance. Some components of your salary are exempt from tax, such as telephone bills reimbursement, leave travel allowance. If you receive HRA and live on rent, you can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator.

On top of these exemptions, a standard deduction of Rs 40,000 was introduced in budget 2018. This has been increased to Rs 50,000 in budget 2019.

To calculate Income tax, include income from all sources. Include:

• Income from Salary (salary paid by your employer)
• Income from house property (add any rental income, or include interest paid on home loan)
• Income from capital gains (income from sale purchase of shares or house)
• Income from business/profession (income from freelancing or a business or profession)
• Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)

Workers’ participation is aimed at the following objectives:

1. Economic:

Workers’ participation in industry improves relationship between workers and management and establishes better human relations. This leads to increased workers’ efficiency thereby increasing productivity and output of the manufacturing unit. Workers’ participation in management enthuse high morale which can be utilized for increasing production. High industrial productivity helps in attaining the economic objectives of the country.

2. Social:

Workers’ participation in management increases the worker’s status in society. He is considered as a respectable member of the society. He is the co-partner in the gains from production. It is reflected through industrial harmony and peace reducing industrial disputes.

3. Psychological:

Workers’ participation in management has a positive impact on the behaviour of the workers. It installs sense of belonging to the organisation in the minds of the workers. It gives them self-respect. They feel dignified and they behave in a responsible manner because they are the partners in decision making process. There are all psychological objectives to be attained by the organisation. The positive behaviour such as high morale, self-motivation, increased efficiency is all exploited in increasing the productivity of the organisations.

Methods of Workers’ Participation in Management:

There are many methods used for workers’ participation in management.

Some of them are the following:

1. Suggestion Method:

Under this method the suggestions from the workers are invited as regards improvement in working, how to avoid accidents, cleanliness etc. The best suggestion from the worker is rewarded and a certificate to that effect is given to the worker so that others can make better suggestions in future. Management receives novel suggestions from the workers. This increases the importance of the workers with the management. This is a method of encouraging workers’ interest in the industrial establishment. This method is adopted in many organizations in India.

2. Co-partnership:

It is a means of workers’ participation in management and is viewed as leading to industrial democracy. Co-partnership allows workers to participate in decision making. Under this method the employees get shares of the company and establish their ownership. This is made possible because the share of profit is not paid in cash but company shares are allotted to the workers.

Being shareholders of the company, they are entailed to participate in management. This increases the status of workers and leads to improvement in their attitude as they realize their responsibility and relations between workers and management become smooth. They also receive dividend on their shares.

Co-partnership suffers from limitations. Employees are not interested in co-partnership and want their share of profit in cash and refuse to accept shares of the company. They prefer to remain wage earners rather than to become partners in the business.

3. Representation on Board of Directors:

Under this method one or two representatives of the workers are nominated on the Board of Directors of a company. They enjoy same privileges and have the same authority as other directors have. They participate in the decision making process as regards policies and procedures. This is one of the most effective methods of ensuring workers’ participation in management. Here the representatives of the employees to be nominated are elected or suggested by the unions of the employees.

4. Works Committees:

The Industrial Disputes Act 1947 provides for establishing works committees in every establishment employing hundred or more workers. This is made compulsory to ensure workers’ participation through legislation. The work committee consists of equal number of members of workers and employer. The object of establishing works committees is to promote healthy industrial relations. However these committees so far failed to achieve the objects as both workers and employers could not change their outlook.

5. Joint Management Councils:

Industrial Policy 1956 of government of India has stressed on joint consultation between management and workers to maintain industrial peace and to promote better industrial relations in the prime sector of industries. The joint management councils received recognition during second five year plan. Under this system consultative committees are set up consisting of representatives of employees and employers both. They are advisory in nature.

These committees discuss the matters relating to workers and the working conditions. The representatives of workers and employers discuss these problems. The managements consider their decisions sympathetically and implement them though not mandatory.

The committees discuss matters relating to canteen facilities, prevention of accidents, general precautions and safety measures, drinking water facilities, rules and regulations, absenteeism, training, discipline etc. After taking decisions regarding the above matter, recommendations are made to the management.

It is not mandatory on the part of the industries to establish joint management councils. These committees are set up with the consultation of recognized union of the establishment. These committees are usually formed at plant level. The members of management are nominated by the top management and the representatives of workers are elected or nominated by the recognized trade union of the undertaking.

Though a good venture of setting up of joint management councils, they could not come up to the expectations. Earlier it received a positive response and one hundred joint management councils were set up. The joint management councils failed to promote mutual understanding between employees and employers. Only union leaders get the opportunity to participate in the council meetings a common employee is far away from the deliberations.

Many a times union leaders use this opportunity to bargain by pushing up their various demands defeating the sole purpose of the joint management councils. In 1975 the government looking at the ineffectiveness of joint management council, introduced shop councils.

Shop Councils:

Under this system the industrial units having employees 500 or more have to set up shop councils in all shops and departments. The members of management and of workers have equal representation. The total number of members should not be more than twelve.

The decision of the shop council is to be implemented within a month’s time. The tenure of the council is for two years. The council should meet at least once in a month. The shop council must make efforts to increase the productivity, to avoid wastages and to make maximum use of machines and manpower and recommend the steps to remove absenteeism.

Joint Councils:

In order to ensure effective workers’ participation, joint councils were introduced. Every undertaking employing 500 or more employees should set up a joint council at the unit level. Organisation of the joint council was the same as of shop council. The joint council should meet at least once in three months. It has a chairman, Vice Chairman and secretaries who receive all the facilities required to perform their functions.

It deals with optimum production, fixation of productivity norms, matters unresolved by the shop councils. Some of the state governments extended this scheme to the undertaking having less than 200 employees. The scheme was implemented in about 1500 undertakings of public and private sectors. Shop councils and joint councils were the schemes implemented during emergency in 1975 but after the lifting of emergency the schemes have lost their effect.

Merits of Worker’s Participation:

Workers’ participation in management is a tool which promotes better industrial relations and establishes industrial peace. It is important concept for both management and workers. The need is to implement it honestly to reap its merits in the form of mutual understanding, increased efficiency of workers, increased production etc. Workers’ participation in management has several advantages.

1. Mutual Understanding:

The employees and employers nurture two different conflicting interests. Surprisingly both lack the knowledge of the problems faced by them. Workers’ participation in management brings both the parties together. This togetherness enables them to understand each other’s problem. This minimizes conflicts and promotes mutual understanding.

2. Efficiency of Workers Increase:

The workers become the partner in decision making process. Whatever decisions are taken, they are their own and hence they have to abide by them. They become enthusiastic and put lot of hard work while working. This helps in increasing the overall efficiency of workers.

3. Increase in Production:

Increase in efficiency of workers, better understanding between workers and employers lead to mutual cooperation which results in increased productivity and increase in total production of the enterprise.

4. Establishes Industrial Peace:

Workers participate in decision making process. Whatever decisions good are bad taken workers are the party to it and hence they cannot evade the responsibility. Employers and workers understand each other better and conflicts are minimized. Each dispute is solved with mutual understanding. In this way disputes are eliminated and industrial peace is restored.

5. Promotion of Industrial democracy:

Participation of all the parties’ employees and employers in the management of the industries which works to safeguard the interests and betterment of all is industrial democracy. Workers’ participation in management helps in promoting industrial democracy.

6. Welcomes Changes:

Some if not all the changes are resisted by the workers. But workers’ participation in management helps in arriving at a unanimous decision whether to accept or reject any change. The changes which bring more benefits than the costs incurred on them, are accepted. Hence the changes are welcomed by the employees.

7. Personal Development:

Participation helps workers to express their creative instinct and they respond favourably to the challenges at the workplace as regards performance of the job. They feel free in doing so. It is possible as participation brings industrial democracy.

8. Reduces Misunderstanding:

Participation reduces misunderstanding regarding the managements’ outlook. This increases the organisational balance.

9. No Outside Help to Sort-out Disputes:

Employees themselves are participating in the decision making with the employers. They therefore realize workers as well as managements’ problem better hence disputes are resolved by understanding the difficulties of each other. So, in case of industrial dispute no outside help is taken they are sorted out within the plant itself by the employees and employers themselves.

Demerits of Workers’ Participation:

In spite of above advantages of workers’ participation there are certain disadvantages.

Following are the demerits of workers’ participation:

1. Workers are not Enthusiastic:

The workers are not enthusiastic about the scheme and employers believe that they being incompetent cause delay in decisions. Some of the good decisions cannot be implemented for lack of support from the workers.

2. Weak Trade Unions:

In India trade unions are not strong enough. There are multiplicities of trade unions and they are dominated and led by political leaders. This makes trade unions weak. They cannot show solidarity of workers. There should be one strong union so that they can elect competent representatives for participation. Moreover, there are certain problems require specialized knowledge which workers do not possess hence such problems cannot be solved through participation. They cannot even understand the gravity of situation.

Reasons for Grievances Handling

(i) Economic: Wages, overtime, bonus, etc.

(ii) Work environment: Poor working conditions, substandard equipments and machinery, defective tools, materials, etc.

(iii) Poor quality of supervision: Perceived notion of favouritism, nepotism, bias, etc.

(iv) Work organization: Rigid and unfair rules, lack of recognition, etc.

Normally grievances originate from managerial policies and practices, when the latter lack consistency, uniformity, equity, fair play, and the desired level of flexibility. Grievances also arise because of inter­personal problems of individual employees, and labour union practices aiming at reinforcing and con­solidating their bargaining strength. The lack of proper communication between the employees and the management can also be a significant reason giving rise to grievances.

Grievances lead to:

(i) Low morale and commitment

(ii) Loss of interest in work

(iii) Low productivity

(iv) Increase in wastages and costs

(v) Increase in absenteeism

(vi) High employee turnover

(vii) Indiscipline among employees

(viii) Employees unrest.

Elements of a Sound Grievance Handling Procedure

The grievance handling procedure is very important for grievance handling in an organisation. It provides the clear-cult guidelines and shows the path to the managers how to solve the grievances. For smooth working it should have certain basic elements so that it can claim that is a good procedure for effective working.

The following elements for a sound grievance handling procedure are suggested:

(a) Well defined communication channels.

(b) The procedure should be simple, to understand.

(c) Properly defined steps for redressing of grievances.

(d) Should have logical sequence of steps.

(e) Favourable attitude of concerned authorities responsible for redressing.

(f) Fact base approach for redressal of grievances.

(g) Proper communication of procedure to all employees and authorities.

(h) Respect for decisions of redressing authority.

(i) Periodical review of grievance handling procedure.

Important Principles of Employee Grievance Handling

Principles or Guidelines for Grievance Handling:

For effective handling of grievances certain principles or guidelines can be followed with good results.

(i) Adequate time must be given for talking to employees, collecting data from and giving them various types of information needed.

(ii) In grievance-handling the representative of management should develop an attitude towards employees that should be instrumental in winning their confidence, loyalty and genuine cooperation. Management’s sincere interest and constructive willingness to help the employees should be displayed throughout.

(iii) A positive approach of management representatives indicating their full awareness of the specific issues as well as their desire and capabilities to carry out the entrusted responsibilities proves highly useful in gaining respect and cooperation.

(iv) In handling grievances, the management representatives must keep in focus not only the current impact of the grievances but also its effects in the long run along with its far distant implications. Thus, grievances should be handled in terms of their total effect on the organization and not solely their immediate or individual effect.

In this connection, the following list of Do’s and Don’ts grievances is useful.

Do:

1. Investigate and handle each and every case as though it may eventually result in an arbitration hearing.
2. Talk with the employee about his grievance; give him a good and full hearing.
3. Get the union to identify specific contractual provisions allegedly violated.
4. Enforce the contractual time limits.
5. Comply with the contractual time limits for the company to handle a grievance.
6. Determine whether all the procedural requirements, as dictated by the agreements, have been complied with.
7. Visit the work area where the grievances arose.
8. Determine if there were any witnesses.
9. Examine the relevant contract provisions, and understand the contract thoroughly.
10. Determine if there has been equal treatment of employees.
11. Examine the grievant’s personal record.
12. Fully examine prior grievance records.
13. Evaluate any political connotations of the grievance.
14. Permit a full hearing on the issues.
15. Identify the relief the union is seeking.
16. Treat the union representative as your equal.
17. Command the respect of the union representative.
18. Hold your grievance discussions privately.
19. Provide the grievance process to non-union members as well.
20. Satisfy the union’s right to relevant information.
21. Demand that proper productivity levels be maintained during the processing of incentive grievances.
22. Fully inform your own superior of grievance matters.

Don’t:

1. Discuss the case with the union steward alone; the grievant should definitely be there.
2. Make agreements with individuals that are inconsistent with the labour agreement.
3. Apply the grievance remedy to an improper grievance.
4. Hold back the remedy if the company is wrong.
5. Admit the binding effect of a past practice.
6. Relinquish your authority to the union
7. Settle grievances on the basis of what is fair. Instead, stick to the labour agreement which, after all, should be your standard.
8. Make mutual consent agreements regarding future action.
9. Bargain over items not covered by the contract.
10. Concede implied limitations on your management’s rights.
11. Argue grievance issues off the work premises.
12. Treat as “arbitrable” claims demanding the disciplining or discharge of management members.
13. Commit the company in areas beyond your limits of responsibility of familiarity.
14. Give away your copy of the written grievance.
15. Discuss grievances of striking employees during an illegal work stoppage.
16. Settle grievance when you are in doubt.
17. Support another supervisor in a hopeless case.
18. Refer a grievant to a different form of adjudication.
19. Overlook the precedent value of prior grievance settlement.
20. Give long written grievance answers.
21. Trade a grievance settlement for a grievance withdrawal (or try to “make-up” for a bad decision in one grievance by “bending over backwards” in another)
22. Negate the management’s right to promulgate plant rules
23. Deny grievances on the premise that “your hands have been tied by the management”.
24. Agree to informal amendments in the contract.

Grievances, if not identified and redressed, may adversely affect workers, managers, and the organiza­tion.

The effects are the following:

1. On the production:
2. Low quality of production
3. Low productivity
4. Increase in the wastage of material, spoilage/leakage of machinery
5. Increase in the cost of production per unit
6. On the employees:
7. Increase in the rate of absenteeism and turnover
8. Reduction in the level of commitment, sincerity and punctuality
9. Increase in the incidence of accidents
10. Reduction in the level of employee morale.
11. On the managers:
12. Strained superior-subordinate relations.
13. Increase in the degree of supervision and control.
14. Increase in indiscipline cases
15. Increase in unrest and thereby machinery to maintain industrial peace

Need for a Formal Procedure to Handle Grievances:

A grievance handling system serves as an outlet for employee frustrations, discontents, and gripes like a pressure release value on a steam boiler. Employees do not have to keep their frustrations bottled up until eventually discontent causes explosion.

The existence of an effective grievance procedure reduces the need of arbitrary action by supervisors because supervisors know that the employees are able to protect such behavior and make protests to be heard by higher management. The very fact that employees have a right to be heard and are actually heard helps to improve morale. In view of all these, every organization should have a clear-cut proce­dure for grievance handling.

Employee Grievance Handling: Effects

Grievance which indicates discontent and dissatisfaction among employees adversely affects their productivity. In other words, by not initiating timely action to deal with grievance, the organisation tends to lose the productive efforts of the discontented employee. It is indeed unrealistic to assume that an aggrieved or dissatisfied employee will put his or her best efforts on the job. The redressal of the employees’ grievances, therefore, assumes importance.

Following are some effects of grievance handling:

1. It encourages employees to raise concerns without fear of reprisal.
2. It provides a fair and speedy means of dealing with complaints.
3. It prevents minor disagreements developing into more serious disputes.
4. It saves employers time and money as solutions are found for workplace problems. It helps to build an organizational climate based on openness and trust.
5. It is a channel for an aggrieved employee to express and present his grievance.
6. It is an assurance for dispassionate handling of one’s grievance.
7. It provides assurance about the availability of some machinery for prompt handling of grievance.
8. It is a means by which an aggrieved employee can release his feelings of discontent or dissatisfaction with his/her job.

Employee Grievance Handling Importance

Any feeling of discontent or dissatisfaction usually results in definite and considerable losses to employee morale, efficiency and productivity. Grievances generally give rise to unhappiness, frustration, indifference to work and thus affect the interests of the organization very adversely.

Quite often when minor grievances are accumulated, major problems creap in like work-stoppages: strikes, lockouts and other forms of unpredictable eruption causing long-term damage to productivity. Therefore, it becomes extremely essential to handle the grievances at the earliest possible moment.

Human Resource Manager’s role in grievance redressal is significant and to be successful he must know and understand the causes which lie behind grievances and how to set them right. His skill in observation of behaviourism, attitudes and habits of people may be highly useful in exploring early symptoms of changes in individuals due to unexpressed grievances. Attitude surveys also provide clues to actual or probable grievances and their impact on productivity.

With the help of thorough analysis of the nature and pattern of grievances, the causes of employee dissatisfaction can be removed. The HR manager has to probe deeper into the details of grievances and explore the best possible method of settling them.

He has to help the top management and line managers, particularly supervisors, in the formulation and implementation of the policies, programmes and procedures for effective grievance handling. These policies, programmes and procedures are generally known as the grievance redressal procedure.

The importance of grievance handling lies in the fact that grievances can have several effects which are essentially adverse and counterproductive to organizational objectives. As we have seen, these adverse effects include – indiscipline, unrest, low productivity, poor quality of production, increase in wastage and costs, increase in employee turnover, increase in absenteeism, increase in accident-proneness, loss of interest in work and consequent lack of morale and commitment.

Therefore, management must be alert to signs and symptoms of employee dissatisfaction and attempt to uncover root-causes of the ill-feelings so that harmony and productive results can be achieved in the organization.

If managed or handled properly the importance of effective grievance handling would be following:

(a) Relieve employees from mental pains or suffering.

(b) Employees feel satisfied at workplace.

(c) Develop employees’ interest in their jobs.

(d) Sense of belongingness or attachment develops.

(e) Employees become cooperative at work.

(f) Avoid many labour problems in industry.

(g) Industrial disputes and accidents are avoided.

(h) Develop good industrial relations in industry.

(i) Industrial peace and harmony are maintained and developed further.

(j) Performance of employees improves to a good extent

(k) Production volume and quality improve.

(l) Profitability of the company improves.

(m) Overall effectiveness and reputation of the company in business improves.

(n) Reputation of the company in markets improved.

(o) Contributes in development of employees, society and national economy.

Employee Grievance Handling: Merits and Demerits

Merits:

1. Investigate and handle each and every case as though it may eventually result in an arbitration hearing.
2. Talk with the employee about his grievance; give him a good and full hearing.
3. Get the union to identify specific contractual provisions allegedly violated.
4. Enforce the contractual time limits.
5. Comply with the contractual time limits for the company to handle a grievance.
6. Determine whether all the procedural requirements, as dictated by the agreement, have been complied with.
7. Visit the work area where the grievance arose.
8. Determine if there were any witnesses.
9. Examine the relevant contract provisions, and understand the contract thoroughly.
10. Determine if there has been equal treatment of employees.
11. Examine the grievance personal record.
12. Fully examine prior grievance records.
13. Evaluate any political connotations of the grievance.
14. Permit a full hearing on the issues.
15. Identify the relief the union is seeking.
16. Treat the union representative as your equal.
17. Command the respect of the union representatives.
18. Hold your grievance discussions privately.
19. Provide the grievance process to non-union members as well.
20. Satisfy the union’s right to relevant information.
21. Demand that proper productivity levels be maintained during the processing of incentive grievances.
22. Fully inform your own superior of grievance matters.

Demerits:

1. Discuss the case with the union steward alone; the grievant should definitely be there.
2. Make agreements with individuals that are inconsistent with the labour agreement.
3. Apply the grievance remedy to an improper grievance.
4. Hold back the remedy if the company is wrong.
5. Admit the binding effect of a past practice.
6. Relinquish your authority to the union.
7. Settle grievances on the basis of what is fair. Instead, stick to the labour agreement which, after all, should be your standard.
8. Make mutual consent agreements regarding future action.
9. Bargain over items not covered by the contract.
10. Concede implied limitations on your management’s rights.
11. Argue grievance issues of the work premises.
12. Treat as “arbitral” claims demanding the disciplining or discharge of management members.
13. Commit the company in areas beyond your limits of responsibility or familiarity.
14. Give away your copy of the written grievance.
15. Discuss grievances of striking employees during an illegal work stoppage.
16. Settle a grievance when you are in doubt.
17. Support another supervisor in a hopeless case.
18. Refer a grievant to a different form of adjudication.
19. Overlook the precedent value of prior grievance settlement.
20. Give long written grievance answers.
21. Trade a grievance settlement for a grievance withdrawal (or try to “make up” for a bad decision in one grievance by “bending over backwards” in another).
22. Negate the management’s right to promulgate plant rules.
23. Deny grievances on the premise that “your hands have been tied by the management.”
24. Agree to informal amendments in the contract.

Industrial relations are human relations in industry. The importance of the human factor in an industrial organisation is beyond question. Better management of industrial relations in an industry is a sine qua non for the success of the industrial concern. It results in industrial peace which is essential for the countries, particularly for India, where the economy is being geared in a planned way to ameliorate the lot of the masses.

Complete harmony between labour and capital may be a dream but quite a considerable amount of unrest and discontent among workers can be removed through efficient handling of industrial relations. It does not require much prudence to realise that in industry the human factor is most important; everywhere in production, man is needed, no matter how sophisticated machinery have been installed.

Interacting between management and workers and between worker and worker are regular features in industry and these constitute industrial relations. So, the importance of industrial relations in industry is self-evident and does not need any elucidation.

Industrial peace must be maintained at any cost to ensure better performance in industry. Industrial relations should be so maintained that it would contribute to increased productivity. Industrial relations have their impact not only on the industrial unit but also on the society.

Industrial friction may inflict lasting injury on the workers. It may affect their careers. Families of workers are likely to suffer which must have repercussion on the society as a whole. Industrial unrests and conflicts foment class-hatred, embitter mutual relations, and put a hurdle in the development of the society and the nation.

As S. C. Kuchhal rightly put it, “the larger the range they cover and the more fundamental the commodities or services they are associated with, the more marked is their influence and damage”. So, there is the impact of industrial relations not only on the economy of a country but also on its society and culture.

In a conflict between the workers and the em­ployer, it is not the fact that only one of the par­ties suffer, usually the workers. A close watch will reveal that it becomes a vital concern for the com­munity also. It has been rightly emphasised that “in the heat of the daily conflict, workers and em­ployers are apt to forget that they are only two limbs of the body politic and that there is always a third partner, in fact, the most dominant part­ner, namely, the community at large, to be reck­oned with”.

So, to ensure social justice, industrial relations play a dominant role and thus the impor­tance of industrial relations has been gaining more and more importance. Industrial relations contrib­ute to world peace. Peace in industry is a powerful factor for good international relations.

Class strug­gles and class antagonisms have been responsible for bloody revolutions in the past, threatening world peace. When the entire world is striving for material well-being and when the nations of the world are moving in a planned way for industrial development; industrial relations are naturally drawing more and more attention. The recognition of the human factor in production as the supreme one puts a premium on the importance of industrial relations.

All the world over, the Government of different countries wedded to the policy of doing wel­fare to the people of the country are passing labour legislations with provisions for sufficient scope of ushering in industrial peace through vari­ous reconciliatory devices.

Importance of Industrial Relations with the Need for Industrial Peace

There has been a phenomenal growth in employment, wages, benefits, working conditions, status of the worker, educational facilities etc. with the growth and spread of industry. Moreover, career patterns have also changed widely by providing change for wide varieties of jobs to the working communities. This has been possible only through fast industrial development which, in its turn, depends on industrial peace.

There has been an acute necessity in India especially during the post-independence period, to industrialise her economy in order to tackle the multifarious socio-economic problems. In the words of Pandit Jawaharlal Nehru ‘The alternative (to industrialisation) is to remain in a backward, under-developed, poverty-stricken and a weak country. We can’t even retain our freedom without industrial growth.”

Hence, one of the main goals of the Five-Year Plans in India has been rapid industrialisation and more employment in secondary and tertiary industries. It is also viewed that one of the essential steps for building up an economically free and self-sustaining India is, large- scale industrialisation at a rapid and steady growth.

With the attainment of independence and with the launching of planning era, serious and earnest efforts have been made towards rapid economic development of India. India has been in the midst of an ambitious and critically important effort to raise the living standards of her people by an integrated… industrial and economic development plan. The size of industrial labour in India has increased remarkably due to rapid and planned industrial development.

The increase in industrial labour led to the formation and development of trade unions and various social groups. It has also been recognised that management without labour would be sterile and labour without management would be disorganised, ill-equipped and ineffective.

It is realised that the concrete co­operation between labour and management is highly essential to fulfill the individual, organisation and national goals. The First Five Year Plan has clearly demonstrated the fact that, an economy organised for planned production and distribution, aiming at the realisation of social justice and the welfare of masses can function effectively only in an atmosphere of industrial peace.

All these necessitate the maintenance of harmonious industrial relations so as to maintain higher productivity to fulfill the goals of the Five Year Plans in India. The investment in and the scope of industries in India have been growing plan after plan. Much of the success or failure of Indian Five Year Plans would be dependent on the maintenance of harmonious employee-employer relations. Frequent industrial conflicts not only affect the management and labour but also tend to impoverish the community as a whole.

They lead to wastage, class hatred, embitter mutual relations and inflict damages on the progress of the nation. They affect production and national income in an adverse manner. They also clog the progress the nation. They affect production and national income in an adverse manner. They also clog the progress and development of the nation. Further, it is not an exaggeration to say that if we are successful in industry the answer to class-antagonisms and world conflicts becomes easier.

Need for Industrial Peace:

The objectives of maintenance of industrial peace is not only to find out ways and means to solve conflicts or to settle differences but also to secure the unreserved co-operation of and goodwill among different groups in industry with a view to drive their energies and interest towards economically viable, commercially feasible, financially profitable and socially desirable channels.

It also aims at the development of a sense of mutual confidence, dependence and respect and at the same time encouraging them to come to closer to each other for removing misunderstandings, redressing grievances, if any, in a peaceful atmosphere and with open mind and fostering industrial pursuits for mutual benefits and social progress. But the maintenance of congenial industrial relations, particularly in a democratic society like ours is not only a significant task but also a complicated one.

The healthy industrial relations are key to the progress and success.

Their significance may be discussed as under:

1. Reduction in Industrial Disputes:

Good industrial relations reduce the industrial disputes. Disputes are reflections of the failure of basic human urges or motivations to secure adequate satisfaction or expression which are fully cured by good industrial relations. Strikes, lockouts, go-slow tactics, gherao and grievances are some of the reflections of industrial unrest which do not spring up in an atmosphere of industrial peace. It helps promoting cooperation and increasing production.

2. Uninterrupted Production:

The most important benefit of industrial relations is that this ensures continuity of production. This means, continuous employment for all from manager to workers. The resources are fully utilised, resulting in the maximum possible production. There is uninterrupted flow of income for all.

Smooth running of an industry is of vital importance for several other industries; to other industries if the products are intermediaries or inputs; to exporters if these are export goods; to consumers and workers, if these are goods of mass consumption.

3. High Morale:

Good industrial relations improve the morale of the employees. Employees work with great zeal with the feeling in mind that the interest of employer and employees is one and the same, i.e., to increase production. Every worker feels that he is a co-owner of the gains of industry. The employer in his turn must realise that the gains of industry are not for him along but they should be shared equally and generously with his workers.

In other words, complete unity of thought and action is the main achievement of industrial peace. It increases the place of workers in the society and their ego is satisfied. It naturally affects production because mighty cooperative efforts alone can produce great results.

4. Mental Revolution:

The main object of industrial relation is a complete mental revolution of workers and employees. The industrial peace lies ultimately in a transformed outlook on the part of both. It is the business of leadership in the ranks of workers, employees and Government to work out a new relationship in consonance with a spirit of true democracy.

Both should think themselves as partners of the industry and the role of workers in such a partnership should be recognised. On the other hand, workers must recognise employer’s authority. It will naturally have impact on production because they recognise the interest of each other.

5. Reduced Wastage:

Good industrial relations are maintained on the basis of cooperation and recognition of each other. It will help increase production. Wastages of man, material and machines are reduced to the minimum and thus national interest is protected.

Thus, it is evident that good industrial relations is the basis of higher production with minimum cost and higher profits. It also results in increased efficiency of workers. New and new projects may be introduced for the welfare of the workers and to promote the morale of the people at work.

An economy organised for planned production and distribution, aiming at the realisation of social justice and welfare of the masses can function effectively only in an atmosphere of industrial peace. If the twin objectives of rapid national development and increased social justice are to be achieved, there must be harmonious relationship between management and labour.

Workers’ participation in management may take the form of ascending or descending participation. In ascending participation an opportunity is given to the workers to participate in the decision-making process at a higher level.

Forms of Workers’ Employees’ Participation in Management are:

(I) Works, Committee;

(II) Joint Management Councils;

(III) Joint Councils;

(IV) Shop Councils; and

(V) Unit Councils.

(I) Works’ Committees:

The Industrial Disputes Act, 1949 provides for the setting up of works, committees as a scheme of workers participation in management which consist of representatives of employers and employees. The Act provides for these bodies in every undertaking employing 100 or more workmen.

The aim of setting up of these bodies is to promote measures for maintaining harmonious relations in the work place and to sort out differences of opinion in respect of matters of common interest to employers and employees. The Bombay Industrial Relations Act, 1946 also provides for these bodies, but under the provisions of this Act they can be set up only in units which have a recognised union and they are called joint committees. The workers directly elect their representatives where there is no union.

Functions:

These works committees/joint committees are consultative bodies. Their functions include discussion of conditions of work like lighting, ventilation, temperature, sanitation etc., and amenities like water supply for drinking purposes, provision of canteens, medical services, safe working conditions, administration of welfare funds, educational and recreational activities, and encouragement of thrift and savings.

It shall be the duty of the works committee to promote measures for securing and preserving amity and good relations between the employers and workmen and to comment upon matters of their common interest or concern and endeavour to reconcile any material difference of opinion in respect of such matters.

Structure:

The works committees have, as office bearers, a President, a Vice-President, a Secretary and a Joint Secretary. The President is a nominee of the employer and the Vice- President is the Workers’ representative. The tenure of these bodies is two years. The total strength of these bodies should not exceed 20. The employees’ representatives have to be chosen by the employees.

These committees functioned actively in some organisations like Tata Iron and Steel Company, Indian Aluminium Works at Belur, and Hindustan Lever. In all these, the managements have evolved joint committees independently of the statutory requirements.

(II) Joint Management Councils (JMCs):

The Second Five Year Plan recommended the setting up of joint councils of management consisting of representatives of workers and management. The Government of India deputed a study group (1957) to study the schemes of workers’ participation in management in countries like U.K., France, Belgium and Yugoslavia.

The report of the study group was considered by the Indian Labour Conference (ILC) in its 15th session in 1957 and it made certain recommendations:

(1) That workers’ participation in management schemes should be set up in selected undertakings on a voluntary basis.

(2) A sub-committee consisting of representatives of employers, workers and government should be set up for considering the details of workers’ participation in management schemes. This Committee should select the undertakings where workers’ participation in management schemes would be introduced in the first stage on an experimental basis.

Objectives:

The objectives of Joint Management Councils are as follows:

(i) To increase the association of employers and employee thereby promoting cordial industrial relations;

(ii) To improve the operational efficiency of the workers;

(iii) To provide welfare facilities to them;

(iv) To educate workers so that they are well equipped to participate in these schemes; and

(v) To satisfy the psychological needs of workers.

A tripartite sub-committee was set up as per the recommendations of Indian Labour Conference which laid down certain criteria for selection of enterprises where the JMCs could be introduced.

They are:

(i) The unit must have 500 or more employees;

(ii) It should have a fair record of industrial relations;

(iii) It should have a well organised trade union;

(iv) The management and the workers should agree to establish JMCs.

(v) Employers (in case of private sector) should be members of the leading employers’ organisation; and

(vi) Trade unions should be affiliated to one of the Central federations.

It was observed by the sub-committee that if the workers and employers mutually agree they can set up JMCs even if these conditions are not met.

The sub-committee also made recommendations regarding their composition, procedure for nominating workers’ representatives, the membership of JMCs etc. The details of these aspects have to be worked out by the parties themselves. A draft model was drawn up regarding the establishment of JMCs. The sub-committee was later reconstituted as the “Committee on Labour- Management Co-operation” to advice on all matters pertaining to the Scheme.

Criteria for Selecting of Units for Setting up of JMCS:

The sub-committee of the Fifteenth Indian Labour Conference which selected 48 units for introduction of the scheme of joint management council had laid down the following criteria for selecting the units-

In private sector, the industries selected were cotton and jute textiles, engineering, chemicals, tobacco, paper, cement, mines and plantations.

In public sector, industries included railway workshops and yards, posts and telegraphs, ports, shipyards, transport workshops, mines, printing and electrical undertaking.

(i) The undertaking should have a well-established, strong trade union functioning.

(ii) There should be a readiness in the parties between employers’ and workers’ union to try out experiment in a spirit of willing co-operation.

(iii) The size of the undertaking should be at least 500 workers.

(iv) The employer in a private undertaking should be member of one of the leading employers’ organisation; and similarly the trade union be related to one of the central federations.

(v) The company should have a fair record of industrial relations.

Functions:

The following are the important functions of JMCs:

(i) To be consulted on matters like standing orders, retrenchment, rationalisation, closure, reduction of operations etc.

(ii) To receive information, to discuss and offer suggestions.

(iii) To shoulder administrative responsibilities like maintaining welfare measures, safety measure, training schemes, working hours, payment of rewards.

Employees’ Participation in Management Scheme of 1975:

Government of India on 30th October, 1975, announced a scheme of workers’ participation in management which consisted of establishment of Joint Councils and Shop Council as part of its 20 point economic programme. The scheme envisages for the establishment of joint councils and shop councils in manufacturing and mining industries employing 500 or more employees in public, private and cooperative sectors.

The scheme contemplated participation of workers in the decision-making process in the matters relating to production, productivity, absenteeism, safety measures, general discipline, working conditions and welfare, and over-all efficiency of the shop/department.

Important features of this new scheme are:

(1) All decisions of a Shop Council as well as of the Joint Council shall be on the edifice of the “Consensus and not by process of voting.”

(2) It is non-statutory like JMCs and there is a clear-cut function of these councils.

(3) “Consensus and time-bound implementation” are the tools for arriving at decisions. Thus, the scheme tries to eliminate the chances of direct interference by outside elements. The decisions are required to be implemented within one month.

(4) The scheme provides for participation of workers at the shop floor level; otherwise the framework is not materially different from that of WCs. and JMCs.

(5) It provides for a two-way communication and an exchange of information between the management and the workmen.

(6) The very change in the nomenclature of the scheme from participation of workers in management’ to that of participation of workers in industry’ makes it more acceptable to employees as the latter are likely to offset some of their misgivings and apprehensions caused by the former.

(7) The scheme hits at three principal objectives to which the reform of industrial democracy is directed, viz., recovery of individual human rights at the work place; consolidation of social and political freedom (to join a particular union of his own choice without any coercion); and the framing of new industrial system functionally suitable to the country’s economy.

(III) Joint Councils:

The joint councils are for the whole unit and its membership remains confined to those who are actually engaged in the organisation. The tenure of the joint councils is for two years. The Chief Executive of the unit becomes its Chairman. Workers’ members of the council nominate the Vice Chairman. The joint council appoints the Secretary. The Secretary is responsible for discharging the functions of the council.

The joint councils will meet once in four months, but the periodicity of the meeting varies from unit to unit, it may be once in a month, quarter etc. The decisions taken at the joint council meetings are by the process of consensus and the management shall implement the decisions within one month. The scheme was implemented by the major units of the central and State governments. The government enlarged the functions of the councils in 1976.

In every industrial unit employing 500 or more workers, there shall be a Joint Council for the whole unit.

The main features of the scheme of Joint Council may be as follows:

(i) Only such persons who are actually engaged in the unit shall be members of the joint council.

(ii) The council shall function for a period of two years.

(iii) The Chief Executive of the unit shall be the Chairman of the joint council and there shall be a Vice-Chairman who will be nominated by worker-members of the council.

(iv) The joint council shall appoint one of the members of the council as its Secretary. Necessary facilities for the efficient discharge of function by the Secretary shall be provided with the premises of the undertaking/establishment.

(v) The term of council once formed shall be for a period of two years; if, however, a member is nominated in the mid-term of the council to fill a casual vacancy, the member nominated to such a vacancy shall continue in office for the remaining period of the term of the council.

(vi) The joint council shall meet, at least, once in a quarter.

(vii) Every decision of the joint council shall be on the basis of consensus and not by a process of voting and shall be binding on employers and workmen and shall be implemented within one month unless otherwise stated in the decision itself.

Functions of Joint Council:

The joint council should deal with matters relating to:

(i) Optimum production, efficiency and fixation of productivity norms of man and machine for the unit as a whole.

(ii) Functions of a shop council which have a bearing on another shop or the unit as a whole.

(iii) Matters emanating from shop councils which remain unresolved.

(iv) Matters concerning the unit or the plant as a whole, the respect of production targets; more specifically, task assigned to a shop council at the shop/department levels but relevant to the unit as a whole will be taken up by the joint council.

(v) The development of skills of workmen and adequate facilities for training.

(vi) Awarding of rewards for valuable and creative suggestions received from the workers.

(vii) The preparation of schedules of working laws and of holidays.

(viii) Optimum use of raw materials and quality of finished products.

(ix) General health, welfare and safety measures for the unit of the plant.

(IV) Shop Councils:

The shop council represents each department or a shop in a unit. Each shop council will consist of an equal number of representatives of employers and workers. The employers’ representatives will be nominated by the management and must consist of persons from within the unit concerned.

The workers representative will be from among the workers of the department or shop concerned. The number of members of each council may be determined by the employers in consultation with the recognised union. The total number of members, however, may not generally exceed twelve.

The decisions of the shop council are to be taken on the basis of consensus but not by voting. Management has to implement the decisions within one month. The tenure of the shop council is for a period of two years. Members of the shop councils meet at least once in a month. Management nominates the Chairman at least once in a month. Management nominates the Chairman of the shop council whereas workers’ members of the council elect the Vice- chairman of the council.

The number of shop councils to be established in an organisation is determined by the employer in consultation with the recognised trade unions/workers of the organisation. The decisions of a shop council which have a bearing on another shop will be referred to joint council for consideration and approval.

Main Features:

The main features of the scheme of Participative Management through Shop Councils are as follows:

(i) In every industrial unit employing 500 or more workmen, the employer shall constitute a Shop Council for each department or shop or one council for more than one department or shop, considering the number of workmen employed in different departments or shops.

(ii) (a) Each council shall consist of an equal number of representatives of employers and workers.

(b) The employer’s representatives shall be nominated by the management and must consist of persons from the unit concerned.

(c) All the representatives of workmen shall be from amongst the workers actually engaged in the department of the shop concerned.

(iii) The employer shall decide in consultation with the recognised union or the various registered trade unions or with workers, as the case may be, in the manner best suited to local conditions, the number of shop councils and departments to be attached to each council of the undertaking or establishment.

(iv) The number of members of each council may be determined by the employer in consultation with the recognised union, registered unions or workers in the manner best suited to local conditions obtaining in the unit; the total number of members may not generally exceed

(v) All decisions of a shop council shall be on the basis of consensus and not by process of voting, provided that either party may refer the unsettled matters to the joint council for consideration.

(vi) Every decision of a shop council shall be implemented by the parties concerned within a period of one month unless otherwise stated in the decision itself and compliance report shall be submitted to the council.

(vii) Such decision of a shop council which have bearing on another shop, or the undertaking of establishment as a whole will be referred to the joint council for consideration and decision.

(viii) A shop council once formed shall function for a period of two years. Any member nominated or elected to the council in the mid-term to fill a casual vacancy shall continue to be a member of the council for the unexpired portion of the term of the council.

(ix) The council shall meet as frequently as in necessary and that at least once in a month.

(x) The chairman of the shop council shall be a nominee of the management; the worker members of the council shall elect a Vice-Chairman from amongst themselves.

Functions of the Shop Councils:

The shop councils should in the interest of increasing production, productivity and overall efficiency of the shop department attend to the following matters:

(i) Assist management in achieving monthly/yearly production targets.

(ii) Improvement of production, productivity and efficiency including elimination of wastage and optimum utilisation of machine capacity and manpower.

(iii) Specially identify areas of low productivity and take necessary corrective steps at shop level to eliminate relevant contributing factors.

(iv) To study absenteeism in the shop/departments and recommend steps to reduce them.

(v) Safety measures.

(vi) Assist in maintaining general discipline in the shop/department.

(vii) Physical conditions of working, such as lighting, ventilation, noise, dust, etc., and reduction on fatigue.

(viii) Welfare measures to be adopted for efficient running of the shop/department.

(ix) Ensure proper flow of adequate two-way communication between the management and the workers, particularly on matters relating to production schedules and progress in achieving the targets.

(V) Unit Councils:

Encouraged by the success of the scheme in manufacturing and mining units, a new scheme of workers’ participation in management in commercial and service organisation in the public sector, having large-scale public dealings, was announced on 5th January, 1977. The Scheme envisaged setting of Unit Councils in units employing at least 100 persons.

The organisations include hotels, restaurants, hospitals, air, sea, railway and road transport services, ports and docks, ration shops, schools research institutions, provident fund and pension organisations, municipal and milk distribution services, trust organisations, all financial institutions, banks, insurance companies, post and telegraph offices, Food Corporation, State Electricity Boards, Central Warehousing, State Warehousing Corporations, State Trading Corporation, Mines and Minerals Trading Corporation, irrigation systems, tourist organisations, establishment for public amusement and training organisations of the Central and State Governments.

The scheme provides for unit level councils. These councils are to eliminate factors which hamper operations and improve methods of operation.

The main functions of the councils include creation of conditions for achieving optimum efficiency, better customer service in areas where there is direct and immediate contact between the workers at the operational level and the consumer, higher productivity, the elimination of pilferage and all forms of corruption, and the institutions of rewards to be given to those with proven ability in these areas.

Main Features of the New Scheme:

The main features of the scheme of workers’ participation through unit level councils would be as follows:

(i) A unit level council consisting of the workers and management of the organisation/ service may be formed generally in each unit, employing 100 or more workers to discuss day-to-day problems and find solutions; but wherever necessary a composite council may be formed to serve more than one unit or a council may be formed department-wise to suit the particular needs of an organisation/service.

(ii) Every unit council shall consist of an equal number of representatives of the management and workers. The actual number of members should be determined by the management in consultation with the recognised union, registered unions or the workers in the manner best suited to the local conditions obtaining in a unit or an organisation, but their total number may not exceed.

It would be necessary to nominate suitable and experienced workers from various departments irrespective of their cadre, affiliation or status, and not trade union functionaries who may not be actually working in the unit.

(iii) The management’s representatives should be nominated by the management and should consist of persons from the unit concerned.

(iv) The management shall decide in consultation with the recognised union or the registered unions or the workers as the case may be in the manner best suited to local conditions.

The number of unit councils and the departments to be attached to each council of the organisation/service.

(v) All decisions of a unit council shall be on the basis of consensus and not by a process of voting, provided that either party may refer the unsettled matters to the joint council for consideration.

(vi) Every decisions of a unit council shall be implemented by the parties concerned within a month, unless otherwise stated in the decision itself.

(vii) The management shall make suitable arrangement for the recording and maintenance of minutes of the meetings and designate one of its representatives as a secretary for this purpose who shall also report the action taken on the decisions at subsequent meetings of the council.

(viii) Such decisions of a unit council, which have a bearing on another unit of the organisation/ service as a whole shall be referred to the joint council for consideration and decisions.

(ix) A unit council once formed shall function for a period of two years. Any member nominated or elected to the council in the mid-term to fill a casual vacancy shall continue to be a member of the council for the unexpired portion of the term of the council.

(x) The council shall meet as frequently as is necessary but at least once in a month.

(xi) The Chairman of the council shall be a nominee of the management. The worker members of the council shall elect a Vice-Chairman from amongst themselves.

Main Functions:

The main functions of the Unit Councils may be:

(i) To create conditions for achieving optimum efficiency, better customer service in areas where there is direct and immediate contact between workers at the operational level and the consumer, higher productivity and output including elimination of wastage and idle time and optimum utilization of manpower by joint involvement in improving the work system.

(ii) To identify areas of chronically bad, inadequate or inferior service and to take necessary corrective steps to eliminate the contributing factors to evolve improved methods of operation.

(iii) To study absenteeism and recommend steps to reduce it.

(iv) To eliminate pilferage and all forms of corruption and to institute a system of rewards for this purpose.

(v) The suggest improvements in physical conditions of working such as lighting, ventilation, dust, noise, cleanliness, internal layout, setting up of customers’ service points, etc.

(vi) To ensure proper flow of adequate two-way communication between the management and workers, particularly about matters relating to the service to be rendered, fixation by targets of output and progress in achieving these targets.

(vii) To recommend and improve safety, health and welfare measures for an efficient running of the unit.

(viii) To discuss any other matters which may have a bearing on the improvement of performance of the unit for ensuring better customer service.

Board Level Participation:

Various organisations provide for the employee participation at the board of directors level. Employees elect their representative to participate in the Boards. Government of India introduced a scheme for induction of employees’ representatives as a director of the Board.

Consequently, a number of public sector undertakings nominated employees’ representatives as a member of their boards. Employees welcomed this step while managements raised their doubts about the success of this scheme.

A number of multinational companies also introduced the concept of employees’ participation at the board level. This scheme would be achieve its purpose when the employees’ representatives are trained in management skills and the functions of boards.

Reasons for Slow Growth:

Various reasons have been assigned for the slow progress and unsatisfactory working of the scheme.

These include:

(i) The apathy and even hostility of the employers and the workers; the former looked upon the bipartite bodies (Works Committees and JMCs) as substitute of trade unions, while the latter considered them to be their rivals

(ii) Lack of a proper understanding between employers and employees of the concept, purposes and benefits of the scheme

(iii) Progressive employers, who have a long tradition of having a healthy system of communication and consultation with their employees, find the bodies to be superfluous

(iv) Workers indirectly participate in management through their representatives. Their latent abilities and qualities have, therefore, been largely unutilised;

(v) The existence of a number of joint bodies: Works committees, joint management councils, production committees, suggestion committees, canteen committees, safety committees, etc., has caused confusion and a duplication of effort as well as a waste of time and energy;

(vi) The absence of a strong trade union or the existence of more than one trade union and inter-union rivalry has made the working of the scheme somewhat difficult;

(vii) The absence of a proper education and training in the principles of human relations, co­operation and participation on the part of the workers’ representatives on these bodies;

(viii) Although the representatives of the central organisations supported the scheme of national conference and committee meetings, they have shown inadequate interest in making their affiliates enthusiastic about it. In undertaking in which employee-employer relations are not cordial and in which arrangements for works committees, grievance redressal procedure and a procedure for the recognition of a trade union are absent, the joint management councils cannot be expected to function satisfactorily;

(ix) Delay in implementing the suggestions and recommendations of these bodies often leads to the waning of the workers’ interest in such bodies;

(x) The joint management councils were created without the creation of a congenial and constructive climate for them, which would ensure that each party would trust the other and would respect its rights.

Level

(1) Informative Participation:

At the initial stage, participation generally takes the stage of informative and associative participation where members have the right to receive information and give opinion on matters of general economic importance.

(2) Consultative Participation:

The next level is the consultative participation where members share their views on matters affecting their welfare with the management. It involves a higher degree of sharing of views. But the management has the discretion to accept or not to accept the views and suggestions of the employees.

(3) Administrative Participation:

At the next higher level, it is administrative participation, which provides a greater degree of share in the authority and responsibility in the management functions.

(4) Decision Participation:

It is the highest level of participation where workers are given opportunity to take part in decision making power activities. As the name suggests, the decision-making power at this level is complete and the delegation of authority is maximum.

It is important to note that participation in management is generally taken to mean only a general consultation on matters concerning the safety, welfare etc., of the workers and nothing more. The ultimate responsibility is vested in the management.

All other matters like wages, bonus etc., are subjects of collective bargaining and are excluded from the preview of the workers participation schemes the world Individual grievances are also excluded from its scope.