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Profession Tax and task employers’ encounter

Posted by: on 31 January 2019 in Amendments, Finance, HR, Human Capital Management

This post is part of the Coffee Break Guide to Compliance by Anandan Subramaniam. Please subscribe to the blog updates if you’d like to be notified of these posts. Please comment below with your doubts and queries.

The Coffee Break Guide to Compliance – Vol. 29 {Profession Tax and task employers’ encounter}

Deduction and remittance of PT are not just as easy as everyone thinks.

Profession tax is levied on a person earning an income from salary/wages, or anyone practicing a profession, self-employed etc.   It is levied by the Local authorities which is a source of revenue for the government. The maximum amount payable per year is INR 2,500 and in line with tax payer’s salary, there are predetermined slabs.

It is applicable in the many States of India and slabs & frequency of deduction is different from State to State.

For applicable States, the slab is the same throughout.  But in Tamil Nadu, the PT slabs are different in each Corporation, Municipality and Village panchayat.  Adding confusion to this, many factory establishment premises falls in two Village panchayat, forcing them to make partial remittance to each.

In many States, the PT is a monthly deduction where the employer does not find any difficulty.

Whereas the remittance is half-yearly, the challenging tasks are listed below, for every employer to consider:

  1. Many employers deduct the Profession Tax by, Equated monthly PT deduction – a popular but flawed PT deduction logic.

The reason being, if the employee resigns in between the half-yearly, it can be either excess deduction of PT or under-deduction of PT, considering the sum of earned monthly gross for such period.

  1. This is more problematic if such deducted amount is remitted to Government, as and when it happens.

In such cases, the excess remittance cannot be gotten back from the authorities.

  1. Many establishments have a practice of deducting and retaining the same. The remittance happens on the due date, after every half-yearly.

Here, it is easier for the establishment to adjust the contribution in case of any separation of an employee, in between the half-yearly. Excess can be refunded or less can be deducted in the Full and Final settlement.

  1. Similar challenges happen if an employee joins in an organization, in the midst of a half-yearly. For him/her the PT remittance would have already been deducted in full, in the previous establishment considering his earning gross.  Again such employees will be subjected to the deduction and remittance of PT. 

To avoid this, upon joining the employee may be requested to provide the Income Certificate from the previous employer, which shall have PT deducted for the half-yearly and he/she can be excluded from deduction & remittance for the particular half-yearly.

In many manpower/staffing establishments, it is a practice that all employees are deducted with equated monthly PT deduction due to frequent attrition.  Employers may not have control to deduct PT at the time of separation, as most of the case shall be absconding and F&F shall have less than the amount to be deducted.

Besides, employers do deduct on monthly basis, to facilitate the employee have the same take home and not to burden him/her by deducting PT in a lump-sum before the due date.

Here, employers need to be cautioned not to deduct such deduction from Gratuity, if payable to employees.

Further, it will be cumbersome to deduct PT on an employee who was on Maternity leave, and the benefit is payable from ESIC.

Hence it is always suggested to deduct the PT during separation or on the month of the due date.

Notwithstanding all the above, any employee who was engaged in one State and joins an establishment in different State in a half-yearly, he/she needs to be considered for deduction and remittance considering the earning gross.

Employers in Chennai face a peculiar challenge of deduction and remittance of PT, every half-yearly as per the following schedule

  1. April to September half-yearly

To be deducted and remitted by 15th September.  Every employer in Chennai needs to consider the employee will be working till September.

  1. October to Next year March half-yearly

To be deducted and remitted by 15th of February.  Here the employer needs to consider the employee shall be with him for the next two wage month

Where the due date of PT remittance is September 15 & February 15, how to make remittance for employees who join in September, February and March.  An Establishment cannot stop recruitment to comply with the remittance of PT by the due date.  Though the PT remittance is accepted even after the due date, most of the Revenue Officer do levy penalty.

Hence, Employers need to take due care of these challenges in deduction and remittance of PT.

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TAGS: Anandan Subramaniam Coffee Break Guide to Compliance Compensation and Benefits Human Capital Management Tax The Coffee Break Guide to Compliance

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