CONTRIBUTION OF ESI ON CONVEYANCE ALLOWANCE – NOT APPLICABLE

Ref: Hon’ble SC judgment in SLP No.811/2021

Till date, in line with the judgment passed by Hon’ble HC of Karnataka, conveyance allowance was treated as part of wages u/s 2(22) of the ESI Act. Conveyance allowance was being included for calculation of ESI contribution and also to arrive at Rs.21000 per month as ESI salary ceiling
In one of the recent cases between ESIC v/s Texmo Industries (Madras), the Hon’ble Supreme Court of India dismissed the impugned order passed by the Hon’ble HC of Madras in case CMA No.1527 dated 08.10.2020
With this SC order, conveyance allowance or traveling allowance does not fall under the definition of ESI wages
This has been confirmed by the case reporting of SC of India
Hence, we are hereby informing all the establishments and factories that conveyance allowance need not be included for ESI contributions and also to arrive at a salary ceiling of Rs.21000
W.e.f. August 21 salary payable in September 21 onwards, you may exempt conveyance allowance from ESI contributions and also for computing the ceiling limit of Rs.21000

Suggestion:

If required and you want to keep an employee out of ESI coverage, you can change the composition of conveyance allowance into CCA or any other allowance so that employees who are on the borderline of the gross salary of Rs.22000 to Rs.23000 still remain out of ESI coverage.

For e.g., Gross salary is Rs.22000 per month including Rs. 2000 conveyance allowance. So, before this judgment, this employee is exempted from ESI coverage, i.e. he is drawing above Rs.21000.

Post this judgment, the same employee stands covered i.e. Rs.22000 – 2000CA = Rs.20000. Hence, he is liable for coverage.

So, if required, you can change CA to CCA or any other allowance so that he remains out of ESI coverage.

Click here for Extracts of SC judgment enclosed for your reference.

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