Setting Up of Business, Industrial and Labour Laws · The Labour Laws (Simplification of Procedure for Furnishing Returns and Maintaining Registers by Certain Establishments) Act

Exemption from Returns and Registers under Section 4

Updated 11 October 2026 · Fact-checked

Under Section 4, an employer of a small or very small establishment need not furnish returns or maintain registers under the Scheduled Acts. Instead, the employer files an annual return in Form I and keeps Forms II and III (small) or Form III (very small) at the work spot. Wage slips and accident returns continue.

Understand Exemption from Returns and Registers (Section 4)

Labour laws such as the Factories Act and the Payment of Wages Act require employers to keep many registers and file many returns. For a tiny business, this paperwork is heavy. The 1988 Act reduces that burden by replacing many records with a few standard forms.

Section 4(1) starts with "Notwithstanding anything contained in a Scheduled Act". So it overrides the Scheduled Acts. It applies to an employer of a small establishment or a very small establishment to which a Scheduled Act applies. Such an employer need not furnish the returns or maintain the registers required under that Scheduled Act.

The size test comes from Section 2. A small establishment has not less than ten and not more than forty persons employed, or employed on any day of the preceding twelve months. A very small establishment has not more than nine persons, on the same test. The limit of forty replaced nineteen from 1 January 2015.

The exemption is conditional. The employer must file an annual return in Form I in place of the returns. In place of the registers, the employer must keep Forms II and III (small) or only Form III (very small) at the work spot. Two duties continue: wage slips, and accident returns under the Factories Act and the Plantations Labour Act.

In return, Section 4(5) protects the employer. If the employer follows the simplified system, no Scheduled Act makes the employer liable to any penalty for not furnishing a return or maintaining a register under that Act.

Key rules to remember

Small establishment: 10 ≤ persons employed ≤ 40 (on any day of the preceding 12 months); Section 2(e). The upper limit was 19 before 1 January 2015.
Very small establishment: persons employed ≤ 9 (on any day of the preceding 12 months); Section 2(f).
Replacement of returns: Annual return in Form I (both categories); Filed in lieu of returns under the Scheduled Acts. Section 4(1), first proviso (a).
Replacement of registers: Small: Forms II and III. Very small: Form III only; Maintained at the work spot. Section 4(1), first proviso (b).
Continuing duties: Wage slips + accident returns; Wage slips in the form under the Minimum Wages (Central) Rules, 1950, and piece-rate work slips under the Payment of Wages (Mines) Rules, 1956. Accident returns under sections 88 and 88A of the Factories Act, 1948 and sections 32A and 32B of the Plantations Labour Act, 1951.
Form of records: Physical or electronic; printout on demand; Section 4(2). Electronic records need a printout available to the Inspector on demand.
Penalty protection: Compliance with Section 4 proviso ⇒ no penalty under the Scheduled Act for not furnishing returns or maintaining registers; Section 4(5).

How to solve Exemption from Returns and Registers (Section 4) questions

Use this method for any question on the Section 4 exemption, whether it is a theory question or a fact-based problem.

1Identify the Scheduled Act in question and check that it applies to the establishment.
2Count the persons employed, including on any day of the preceding twelve months, and classify the establishment: 10 to 40 is small, up to 9 is very small.
3State the exemption: under Section 4(1), the employer need not furnish the returns or maintain the registers required under that Scheduled Act.
4Apply the conditions: Form I annual return; Forms II and III for small, Form III for very small, kept at the work spot.
5Check the continuing duties: wage slips and accident returns under the Factories Act and the Plantations Labour Act.
6Check the form of records and filing: physical or electronic, with a printout for the Inspector on demand; Form I may be sent by email if the authority can receive it.
7Add that other provisions of the Scheduled Act, such as inspection of registers, still apply (Section 4(4)), and that Section 4(5) gives penalty protection.
8Write a clear conclusion in one line.

Quickest way: Count, classify, then list the forms

When to use it: Use this when a short fact-based question gives the number of employees and asks what the employer must do.

Count employees: 9 or fewer is very small; 10 to 40 is small; above 40 is outside Section 4.
Write the forms: Form I plus Form III for very small; Form I plus Forms II and III for small.
Add the two always-continue duties: wage slips and accident returns.
End with the penalty protection under Section 4(5), if the conditions are met.

Common mistakes in Exemption from Returns and Registers (Section 4)

Using the old limit of nineteen for small establishments.
Older books and notes still show 19.
Fix: Remember that the limit is forty, substituted from 1 January 2015.
Saying the exemption means no records at all.
The word "exemption" suggests complete relief.
Fix: The employer must still file Form I and keep Form III (and Form II if small), and must issue wage slips.
Giving a very small establishment both Forms II and III.
Students merge the two categories.
Fix: Very small keeps only Form III. Small keeps Forms II and III.
Forgetting accident returns.
Students focus on registers and wage records.
Fix: Accident returns under sections 88 and 88A of the Factories Act and sections 32A and 32B of the Plantations Labour Act continue.
Thinking records must be on paper.
Registers are associated with physical books.
Fix: Section 4(2) allows physical or electronic form, but a printout must be available to the Inspector on demand.
Ignoring the preceding twelve months in the headcount.
Students count only current staff.
Fix: The test covers persons employed or who were employed on any day of the preceding twelve months.

Worked examples

Example 1

Sharma Traders, a shop in Jaipur with a registered Scheduled Act applicable to it, has 7 employees. The owner asks what records must be kept in place of the registers under the Scheduled Act. Advise.

Show the solution

Provision: Section 4(1) of the 1988 Act exempts employers of small and very small establishments from furnishing returns and maintaining registers under a Scheduled Act, subject to conditions.
Classification: with 7 persons, the establishment has not more than nine persons, so it is a very small establishment under Section 2(f), assuming that was also the case on every day of the preceding twelve months.
Records: the owner must file an annual return in Form I in lieu of returns and maintain a register in Form III at the work spot.
Continuing duties: wage slips must still be issued in the prescribed form, and accident returns apply where the Factories Act or Plantations Labour Act applies.
Protection: if the owner complies, Section 4(5) means no penalty under the Scheduled Act for not furnishing returns or maintaining registers.

Answer: Sharma Traders is a very small establishment. It must file Form I annually and keep Form III at the work spot, and continue to issue wage slips. With compliance, no penalty arises under the Scheduled Act for the registers and returns replaced.

Example 2

Greenfield Textiles has 32 employees. It keeps its records on a computer. An Inspector asks to see the registers, and the manager says the computer files cannot be shown. Examine the position under Section 4.

Show the solution

Classification: 32 persons lie between ten and forty, so it is a small establishment under Section 2(e).
Records required: Form I annual return, and registers in Forms II and III at the work spot.
Electronic form: Section 4(2) permits maintaining records on a computer or other electronic media.
Condition: the proviso to Section 4(2) requires that a printout of the records, or a portion, be made available to the Inspector on demand.
Inspection: under Section 4(4), the inspection provisions of the Scheduled Act still apply to these registers and returns.
Conclusion on the manager's stand: refusing to provide a printout is not valid.

Answer: Electronic records are allowed, but the manager must give the Inspector a printout on demand. Refusing to do so breaches the condition in Section 4(2), and the inspection powers under the Scheduled Act continue to apply.

Exam tips

Learn the two size tests word for word: ten to forty, and nine or fewer. Examiners often give a headcount and ask you to classify.
Write the forms in a short table-like list in your answer: Form I, Form II, Form III, and who keeps which.
Always mention the continuing duties, wage slips and accident returns. Many students lose marks by leaving them out.
Follow ICSI style: provision, facts, conclusion. Cite Section 4 and Section 2 where relevant.
If a question mentions computers or email, quote Section 4(2) and 4(3).

Practice questions from The Labour Laws (Simplification of Procedure for Furnishing Returns and Maintaining Registers by Certain Establishments) Act

Exemption from Returns and Registers (Section 4) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalExemption from Returns and Registers (Section 4)

Exemption from Returns and Registers (Section 4): frequently asked questions

Who is exempt under Section 4 of the 1988 Act?

The employer of a small or very small establishment to which a Scheduled Act applies. The employer need not furnish returns or maintain registers required under that Scheduled Act, if the conditions in the provisos are followed.

Which forms replace the registers and returns?

Form I annual return replaces returns. For registers, a small establishment keeps Forms II and III, and a very small establishment keeps only Form III, at the work spot.

Do small establishments still have to issue wage slips?

Yes. The second proviso requires the employer to continue issuing wage slips in the form under the Minimum Wages (Central) Rules, 1950, and the slips for piece-rated workers under the Payment of Wages (Mines) Rules, 1956.

Can the records be kept on a computer?

Yes. Section 4(2) allows physical or electronic form. If electronic, a printout must be made available to the Inspector on demand. Form I may also be sent by email if the authority can receive it.

Is the employer liable to penalty if the old registers are not kept?

Not if the employer furnishes Form I and maintains the required registers as per Section 4. Section 4(5) says the Scheduled Act will not make the employer liable to penalty for not furnishing the replaced returns or registers.

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