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Amity Law School

B.A.LL.B 6thSemester
Labour Law II
Dr.Sheeba Ahad

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Module II
Deductions

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 Deductions which may be made from Wages- Section 7
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• Section 7 of the Act deals with the provisions relating to deductions to be made
from the wages of an employed person .Subsection (1) of section 7 is general in
nature and provides that notwithstanding the provisions of the Railway Act 1989 ,
the wages of an employed person shall be paid to him without deductions of any
kind except those authorised by or under this Act.
• Explanation I attached to subsection (1) defines the word ‘deduction’, According to
it every payment made by the employed person to the employer or his agent shall,
for the purposes of this Act be deemed to be a deduction from wages .

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• Explanation II further provides that any loss of wages resulting from the
imposition, for good and sufficient cause, upon a person employed of any of the
following penalties, namely:

(1) the withholding of increment or promotion including the stoppage of an

increment at an efficiency bar;

(2) the reduction to a lower post or time scale or to a lower stage in a timescale;

(3) suspension;

shall not be deemed to be a deduction from wages in any case where the rules
framed by the employer for the imposition of any such penalty are in conformity
with the requirements, if any, which may be specified in this behalf by the State
Governments, by notification in the Official Gazette
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• Thus any loss of wages resulting from the aforementioned penalties shall not be deemed to
be a deduction from wages. Clause (I) of Explanation II to sub-section (1) of Section 7
speaks of the imposition for good and sufficient cause of the penalties mentioned therein.
But that does not empower the prescribed authority to sit in judgment over the order of
punishment and decide whether there was indeed good and sufficient cause for making the
order. The expression ‘for good and sufficient cause' has been inserted in the provision only
to, describe the kind of orders contemplated by Explanation II. The order of penalty must
not be order which is not commonly accepted as being for good and sufficient cause. It
must not be an order made arbitrarily. It is to note that the Explanation II is in the nature of
a definition. It is not a provision conferring jurisdiction upon any authority.

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• Thus the Explanation II indicates that for good and sufficient cause the penalties
can be imposed and they shall not be deemed to be a deduction from wages if,
first, penalties have been imposed in accordance with the rules framed by the
employer and secondly such rules framed by the employer for imposition of any
such penalties, are in consonance with the requirements, if any, laid down by the
State Governments, by notification in the Official Gazette.
• It has been observed by the High Court of Orissa
• In SambunathBattacharjee v. Orient Paper Mills, (1995) ILLJ 159 that having
made a contract to pay an employer cannot refuse to pay by deduction from the
pay or make delay in payment. With object of protecting classes of employees as
provided, by making available cheap and speedy remedy, Legislature brought the
Act to statute book creating special forum. Being a benevolent statute liberal
interpretation is to be given to deduction and delay. Non-payment of entire salary
on the due date is delay and non-payment of a part of whole of the salary for the
period when payment is to be made is deduction. It does not cover only admitted
deduction or delayed payment. Where entitlement to payment by an employee is
disputed, Authority appointedunder Section 15(1) can go into the dispute.
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• In Karnataka Central Co-operative Bank Ltd. v. Karpi, (1987) ILLJ 179(Karn.)

where pending disciplinary way of subsistence allowance. An application was
filed under Section 15(2) alleging that he was entitled to full salary and that the
payment of 1/4th of the basic salary amounted to deduction from wages. It has
been held that in order to attract Section 15(2) it must be shown that contrary to
the provisions of the Act the deductions have been made from the wages. Section
7 of the Act makes it clear that any loss of wages on account of suspension shall
not be deemed to be a deduction from wages within the meaning of Section 15(2).
Subsistence allowance is given for enabling the employee to survive and face the
enquiry: Payment of such allowance is not on account of services rendered to the
employer and it is not given by way of wages. It will not amount to wages within
the meaning of the Act. Hence subsistence allowance does not amount to any loss
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of wages or to a deduction from wages.
 Deductions which are allowed by the
Act(Authorised Deductions) Name of Institution

• One of the important object of the Act was to safeguard the wages of the
employees from unlawful deductions which were made from the wages and
consequently the workers received only a meagre part of it. The Act has clearly
enumerated deductions which may be made from wages. Section 7(2) of the
Payment of Wages Act provides that deductions from wages of an employed
person shall be made only in accordance with the provisions of this Act, and may
be of the following kinds only, namely:

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 Fines-Section 8 Name of Institution

• Section 8 of the Act empowers the employer to impose a fine on the employees.
But while doing so, the employer is bound to follow the procedure laid down under
section 8 of the Act. Therefore, the below mentioned procedure is to be followed
before imposing fine --
• (1) No fine shall be imposed on any employed person save in respectof such acts
and omissions on his part as the employer, with the previous approval of the
appropriate Government or of the prescribed authority, may have specified by
notice under subsection (2)
• (2) A notice specifying such acts and omissions shall be exhibited in the
prescribed manner on the premises in which the employment is carried on or in the
case of persons employed upon a railway (otherwise than in a factory), at the
prescribed place or places.
• (3) No fine shall be imposed on any employed person until he hasbeen given an
opportunity of showing cause against the fine, or otherwise than in accordance with
such procedure as may be prescribed for the imposition of fines.

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• (4) The total amount of fine which may be imposed in any one wage period on any
employed person shall not exceed an amount equal to three per cent of the wages
payable to him in respect of that wage-period.
• (5) No fine shall be imposed on any employed person who is under the age of
fifteen years.
• (6) No fine imposed on any employed person shall be recovered from him by
installments or after the expiry of ninety days from the day on which it was
imposed.
• (7) Every fine shall be deemed to have been imposed on the day of the act or
omission in respect of which it was imposed.

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• (8) All fines and all realisations thereof shall be recorded in aregister to be kept by the

person responsible for the payment of wages under section 3 in such form as may be

prescribed; and all such realisations shall be applied only to such purposes beneficial to the

persons employed in the factory or establishment as are approved by the prescribed authority

• Explanation: When the persons employed upon or in any railway. factory or industrial or

other establishment are part only of a staff employed under the same management, all such

realisations may be credited to a common fund maintained for the staff as a whole, provided

that the fund shall be applied only to such purposes as are approved by the prescribed

authority.

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 Deduction for Absence from Duty-
Section 9 Name of Institution

Under section 9 of the Act, deductions for absence from duty can be made by the
employer from the wages of the employees. Section 9 provides as under --

(1) Deductions may be made under clause (b) of sub-section (2) ofsection 7 only on
account of the absence of an employed person from the place or places where, by the
terms of his employment, he is required to work, such absence being for the whole or
any part of the period during which he is so required to work

(2) The amount of such deduction shall in no case bear to the wages payable to the
employed person in respect of the wage-period for which the deduction is made in a
larger proportion than the period for which he was absent bears to the total period,
within such wage-period, during which by the terms of his employment,he was
required to work:
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• Proviso attached to sub-section (2) provides that if ten or more employed persons
acting in concert absent themselves without due notice (that is to say without
giving the notice which is required under the terms of their contracts of
employment) and without reasonable cause, such deduction from any such person
may include such amount not exceeding his wages for eight days as may by any
such terms be due to the employer in lieu of due notice. This is, however subject
to any rules made in this behalf by the appropriate Government.
• It is further provided by way of an 'explanation' that an employed person shall be
deemed to be absent from the place where he is required to work if, although
present in such place, he refuses, in pursuance of a stay-instrike or for any other
cause which is not reasonable in the circumstances, to carry out his work.
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• Kothari Ltd. V Second A.J.Cum Appellate Tribunal 1991 II LLJ 604

• The court has made clear that where the employee is prevented from reaching the
workplace due to 'Bund’, employer is not entitled to deduct his wages.

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 Deduction for Damage or Loss-Section 10 (S.7 (2)(c),(m),
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(n)&(o)
• The provisions relating to deduction for damage or loss caused to the employer have been
discussed under section 10 of the Act. According to sub section (1) of section 10
• (i) deductions for damage to or loss of goods expressly entrusted to the employed person
for custody or for loss of money for which employed person is required to account, and
• (ii) such damage or loss is directly attributable to the neglect or default of the employed
person.
• Similarly ,according to clause(m),(n) and (o) of subsection (2) of section 7,deductions
from the wages of person employed in railway administration on account of:

• (2) deductions for recovery of losses sustained by a railway administration on account of

any rebates or refunds incorrectly granted by the employed person where such logs is
directly attributable to his neglect or default. 15
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(i) acceptance of counterfeit or base coins or mutilated or forged currency notes by

employed person.

(ii) failure of the employed person to invoice, to bill, to collect or to account for the
appropriate charges due to that administration whether in respect of fares, freight,
demurrage, whartage and cannage or in respect of sale of food in catering
establishments or in respect of sale of commodities in grain-shops or otherwise.

(iii) deductions for recovery of losses sustained by a railway administration on

account of any rebates or refunds incorrectly granted by the employed person where
such toss is directly attributable to his neglect or default.

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• Sub-section (IA) provides that the below mentioned deductions cannot be made
until the employed person has been given an opportunity showing cause against the
deduction or otherwise than in accordance with such procedure as may be
prescribed for the making of such deductions –
• According to sub-section (2), all such deductions and all realisations thereof shall
be recorded in a register to be kept by the person responsible for the payment of
wages under section 3 in such form as may be prescribed.

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 Deductions for Service rendered-Section 11
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Section 7(2)(d),(e)
This section lays down that the below mentioned deductions must not be made from the wages
of an employed person, unless the house-accommodation amenity of service has been accepted
by him as a term of employment or otherwise-

According to clause(d) of subsection (2) of Sec.7,deductions from the wages of an employed

person may be made for the house accommodation supplied:

(i) by the employer; or

(ii) by the government ; or

(iii) or any housing board set-up under any law for the time being in force ( whether the
Government or the board is the employer or not) ; or

(iv) any other authority engaged in the business of subsiding house accommodation which may
be specified in this behalf by the state government by notification in the official gazette.

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• Similarly , according to clause (e) of subsection (2) of sec.7, the deductions from
the wages made for amenities and services supplied by the employer. Such
amenities and services are authorised by general or special orders by the state
government or by any officer specified by it in this behalf .But the word ‘ services’
in clause (e) does not include the supply of tools and raw materials required for the
purpose of employment.
• According to Section 11 ,a deduction under clause(d)or clause (e) of sub section(2)
of section 7 shall not made from wages of an employed person unless the house
accommodation , amenity or service has been accepted by him as term of
employment or otherwise .Further ,such deduction shall not exceed an amount
equivalent to the value of the house accommodation , amenity or service supplied.
The deduction for amenities and service supplied under clause ( e) shall be subject
to such conditions as the state government may impose.
• Section 11 further lays down that such deductions must not exceed an amount
equivalent to the value of the house-accommodation amenity or service supplied.
Deductions made for amenities and services supplied by the employer shall be
subject to such conditions as the appropriate Government may impose.
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 Deduction for recovery of advances-Section 12
(sec. 7(2)(f)) Name of Institution

• The provisions relating to deductions for recovery of advance have been discussed
under section 12 of the Act. It lays down that deduction for recovery of advances
of whatever nature (including advances for travelling allowance or conveyance
allowance) and the interest due in respect thereof, or for adjustment of over
payments of wages shall be subject to the following conditions---
• (a)recovery of an advance of money given before employment began shall be
made from the first payment of wages in respect of a complete wage-period, but no
recovery shall be made of such advances given for travelling expenses;
• (b) recovery of an advance of money given after employment began shall be
subject to such conditions as the State Government may impose;
• (c) recovery of advances of wages not already earned shall be subject to any rules
made by the State Government regulating the extent to which such advances may
be given and the installments by which they may be recovered.

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 Deductions for recovery of loans - section 12A(Sec.7(2)
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(ff))
• Section 12A provides that deductions for recovery of loans granted for house building or
other purposes approved by the appropriate Government, and the interest due in respect
thereof shall be subject to any rules made by the appropriate Government regulating the
extent to which such loans may be granted and interest payable thereon.
• Deduction for recovery of loans for house building (Secs.7(2) (f ff),12-A)
• According to clause(fff) of subsection (2) of sec.7, deduction from the wages of an
employed person for recovery of loans granted for house-building or other purposes .
Deduction may also be made for the recovery of interest due in respect of the loan. But such
loan must have been approved by the government. According to sec.12A,recovery of such
loan shall be subject to any rules made by the state government requlating the extent to
which such loans may be granted and the rate of interest payable thereto

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• Deduction for income-tax payable(sec.7(2)(g))

• According to Sec.7 (2)(g),income-tax payable by the employed person may be
deducted from the wages of the employed person.
• Deduction by order of a court(Sec.7(2)(h))

• According to Sec.7(2)(h),deduction from the wages of an employed of an

employed person may be made if such deduction is required to be made by order of
a Court or other authority competent to make such order.
• Deduction for repayment of advances from the Provident Fund (Sec. 7(2)(i))

• According to Clause (i) of Sec.7(2),deduction from the wages of an employed

person may be made for the repayment of advances made from the Provident
Fund.Clause (i) of Sec.7(2) reads as under:
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• (i) “deduction for subscription to ,and for repayment of Advances from any
Provident Fund to which the Provident Fund Act ,1952 applies or any recognised
Provident Funds as defined in clause(38) of Section 2 of the Indian Income Tax Act
,1961,or any
• (ii) provident fund approved in this behalf by the state Government, during
continuance of such approval.”
• Deduction for payment of membership fee to registered trade union (S.7(2)
(kkk)
• Deduction for payment of insurance premium on Fidelity Guarantee
Bonds(S.7(2(I)
• Deduction for contribution to the Prime Minister’s Fund(S.7(2)(p)).
• Deduction for payment to any premium of life Insurance Policy(S.7(2)(k)
• Deduction for contribution to any continued by the employer or a registered
trade union(S.7(2)(kkk)

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 Deduction for payments of Co-operative societies
and insurance scheme- Name of Institution
Section 13
• Section 13 provides that the below mentioned deductions are subject to such
conditions as the State Government may impose
• (a)deductions for payments to co-operative societiel approved by the State
Government or any officer specified by it in this behalf or to a scheme of insurance
maintained by the Indian Post Office: or
• (b) deductions made with the written authorisation of the person employed for
payment of any premium on his life insurance policy to the Life Insurance
Corporation India established under the Life Insurance Corporation Act, 1956, or
• (c) deductions for the purchase of securities of the Government of India or of the
State Government; or
• (d) deductions for being deposited in any Post Office Savings Bank in furtherance
of any savings scheme of any such Government.

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 Maintenance of registers and records –
section 13A Name of Institution

• Section 13A of the Act makes it mandatory for the employer to maintain registers
and other records as stated below
• (1) Every employer shall maintain such registers and records giving such
particulars of persons employed by him, the work performed by them, the wages
paid to them, the deductions made from their wages, the receipts given by them and
such other particulars and in such form as may be prescribed.
• (2) Every register and record required to be maintained under this section shall, for
the purposes of this Act, be preserved for a period of three years after the date of the
last entry made therein.

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