Professional Tax Registration and Compliance for Employers in Baran

What Is Professional Tax?

Professional tax is a tax levied by state governments on persons earning income from a profession, trade, calling or employment. It is not a central tax. Each state that levies it has its own Professional Tax Act, which sets out who must register, the slabs of tax, the due dates and the penalties. Article 276 of the Constitution limits the amount of tax that a state may levy on a person in a year. Not all states and union territories impose professional tax, so a business in one state may have no obligation while the same business in another state must register and pay.

For a business, professional tax involves two sets of duties. First, as an employer, it must deduct the tax from employees' salaries and pay it to the state. Second, the business itself, and persons such as professionals, traders and company directors, may have to pay professional tax on their own account. The registrations for these are different, and many businesses discover the second one late.

Types of Professional Tax Registration

• Professional Tax Registration Certificate (PTRC): for employers who pay salaries and wages. The employer deducts tax from employees according to the state slab and deposits it with the department.
• Professional Tax Enrolment Certificate (PTEC): for persons and entities who are liable to pay the tax on their own account, such as professionals, traders, firms and companies, as the state law provides.

The names and procedures differ by state. For example, some states use a single registration, some call the certificates by different names, and some collect the tax through a local body. We follow the rules of the state in which you are liable.

Who Needs to Register?

• Employers with employees in a state that levies professional tax, above the minimum prescribed threshold of salary.
• Companies, firms, LLPs and other entities carrying on business in such a state, as the state law provides.
• Professionals such as chartered accountants, company secretaries, doctors, lawyers, architects and consultants, where the state law covers them.
• Traders, shopkeepers, contractors and agents, as the state law provides.
• Directors, partners and other persons who draw remuneration from the entity, where the law applies.

An employer that has employees in several states may have to register separately in each state that levies the tax, and a state without professional tax does not require any registration at all.

How Professional Tax Works for an Employer

• The employer registers and obtains the certificate and a registration number.
• Each month, it works out the tax payable for each employee according to the salary slab in the state's schedule and deducts it from the salary.
• It deposits the total with the state, using the state's online portal or challan, by the due date.
• It files returns, monthly, quarterly or annually, depending on the state and the amount of tax.
• It maintains records of deduction and payment and issues the tax details in the employees' payslips and Form 16 where relevant.

Non-deduction, late deposit and late filing attract interest and penalty under the state law. Because the employer has deducted the tax from employees' salary, the liability is taken seriously by state departments.

What Our Professional Tax Service Includes

• Check of where you are liable: the states in which you have employees, offices or business activity, and whether those states levy the tax.
• Application for PTRC for employers and PTEC for entities and professionals, as the state requires.
• Preparation of the application on the state portal, with the documents in the required format.
• Guidance on the slabs, the monthly deduction process and the payroll set-up.
• Tracking of the application, and response to clarifications raised by the department.
• Delivery of the registration or enrolment certificate, as issued.
• A due-date calendar for payment and returns in each state.
• Optional monthly payment and return filing, where you wish us to manage it.

How the Process Works

We begin by asking where your employees work and what each is paid. We then identify the states and registrations that apply and give you a checklist of documents. After you send the documents, we prepare the application on the state portal and share the details for your confirmation. The department may verify the documents and issue the certificate, sometimes after a physical inspection of the place of work in some states. We give you the certificate and a short note on how to apply the slabs through payroll. The time needed depends on the state and the speed of its department. Where you ask for it, we continue with the monthly payments and returns.

Important Considerations

• Rates, slabs, thresholds and due dates differ widely between states, and they are revised by the states. Please do not rely on a figure from another state.
• A business that has no employees may still be liable for itself in some states.
• Employers should register in time. Back-dated registration can lead to demand for past tax, interest and penalty.
• Professional tax is a deduction in computing taxable income for the person who pays it, subject to the Income-tax Act. Please consult your chartered accountant on tax treatment.
• Replying to notices, assessments and appeals under the state law are separate services.