The Government of Andhra Pradesh, by way of a government order (G.O.Ms.No. 82), has ordered changes to Profession Tax. The revised tax slabs for salaried employees in Andhra Pradesh are as follows.
| Salary for the month in Rs | Profession Tax for the month in Rs |
|---|---|
| Less than or equal to 15,000 | Nil |
| 15,001 – 20,000 | 150 |
| 20,001 and above | 200 |
You can download the government order here.
In the previous post, we saw why deducting Profession Tax (PT) equally across six months in locations like Chennai (where PT is calculated for a period of six months) is a bad idea. Let us examine a better method of PT deduction for employees located in places like Chennai. The method should ensure that there is no over or under deduction of PT for employees who do not work the entire 6 months during a half-year PT period.
You could deduct PT in a manner where the PT deduction moves in lockstep with the earned pay of an employee. This will ensure that there is never over or under deduction of PT. Let us explain this with the help of illustrations.
Currently (Feb 2013), Profession Tax for employees based in Chennai is calculated as per the below slabs.
| Salary for the half year in Rs | Profession Tax for the half year in Rs |
|---|---|
| Less than or equal to 21,000 | Nil |
| 21,001 – 30,000 | 100 |
| 30,001 – 45,000 | 235 |
| 45,001 – 60,000 | 510 |
| 60,001 – 75,000 | 760 |
| 75,001 and above | 1095 |
Illustration 1
Assume that a person earns Rs 25,000 every month, amounting to Rs 150,000 per half year. You could deduct PT as follows for the first half (Apr to Sep) of the year.
|
Month |
Salary (Rs) |
Cumulative Income (Rs) |
PT slab the cumulative income falls in (Rs) |
PT liability until the month |
PT deducted in the month** (Rs) |
Cumulative PT deducted (Rs) |
|---|---|---|---|---|---|---|
|
April |
25,000 |
25,000 |
20,001 – 30,000 |
100 |
100 |
100 |
|
May |
25,000 |
50,000 |
45,001 – 60,000 |
510 |
510-100=410 |
510 |
|
June |
25,000 |
75,000 |
60,001 – 75,000 |
760 |
760-510=250 |
760 |
|
July |
25,000 |
100,000 |
75,001 and above |
1095 |
1095-760=335 |
1095 |
|
Aug |
25,000 |
125,000 |
75,001 and above |
1095 |
0 |
1095 |
|
Sep |
25,000 |
150,000 |
75,001 and above |
1095 |
0 |
1095 |
**The amount to be deducted under PT each month is presented in the “PT Deducted in the month” column. Each month, we take a look at the PT slab in which the cumulative salary (from the start of the six month period until that month) falls and then determine the PT liability until that month. From the PT liability figure we deduct the already deducted PT (until that month) in order to arrive at the PT deduction amount for that month.
As presented in the above table, you shall deduct the Profession Tax for the first half by July payroll itself. If an employee leaves at any point in time before September, this method would ensure accurate deduction of Profession tax on the basis of the employee’s earned pay till that point in time.
Illustration 2
Assume that a person earns Rs 13,000 every month amounting to Rs 78,000 per half year. The PT calculation will be as follows for the first half.
|
Month |
Salary (Rs) |
Cumulative Income (Rs) |
PT slab the cumulative income falls in (Rs) |
PT liability until the month |
PT deducted (Rs) |
Cumulative PT deducted (Rs) |
|---|---|---|---|---|---|---|
|
April |
13,000 |
13,000 |
Less than 20,000 |
0 |
0 |
0 |
|
May |
13,000 |
26,000 |
20,001 – 30,000 |
100 |
100-0=100 |
100 |
|
June |
13,000 |
39,000 |
30,001 – 45,000 |
235 |
235-100=135 |
235 |
|
July |
13,000 |
52,000 |
45,001 – 60,000 |
510 |
510-235=275 |
510 |
|
Aug |
13,000 |
65,000 |
60,001 – 75,000 |
760 |
760-510=250 |
760 |
|
Sep |
13,000 |
78,000 |
75,001 and above |
1095 |
1095-760=335 |
1095 |
If an employee leaves at any point in time before September, this method would ensure accurate deduction of Profession tax on the basis of his earned pay till that point.
Illustration 3
Assume that a person earns Rs 13,000 every month amounting to Rs 78,000 per half year. The person leaves the company on 15-Jul.
|
Month |
Salary (Rs) |
Cumulative Income (Rs) |
PT slab the cumulative income falls in (Rs) |
PT liability until the month |
PT deducted (Rs) |
Cumulative PT deducted (Rs) |
|---|---|---|---|---|---|---|
|
April |
13,000 |
13,000 |
Less than 20,000 |
0 |
0 |
0 |
|
May |
13,000 |
26,000 |
20,001 – 30,000 |
100 |
100-0=100 |
100 |
|
June |
13,000 |
39,000 |
30,001 – 45,000 |
235 |
235-100=135 |
235 |
|
July (Until July 15) |
6,290** |
45,290 |
45,001 – 60,000 |
510 |
510-235=275 |
510 |
**The monthly pay of Rs 13,000 calculated for 15 days (until the last working day).
In the above illustration it may be noted that the PT deduction has happened for the exact salary the employee earned during the six month period.
In summary, the PT deduction logic described above is efficient since the PT deduction moves in lockstep with an employee’s earned pay and the deduction happens only after the PT liability arises. This ensures that there is never a case of over or under-deduction of PT.
This deduction method could be followed (instead of the equal installment method) for all locations where PT remittance happens once every 6 months — locations such as Chennai and other places in Tamil Nadu, Pondicherry, and locations in Kerala.
Profession tax (PT) is levied by local authorities such as city corporations and municipalities on employees and employers. PT is calculated on the basis of the earned gross salary of employees. In some states (such as Maharashtra and Andhra Pradesh), PT is to be deducted from employee salary and remitted each month to the local authorities while in states such as Kerala and Tamil Nadu PT should be remitted once every 6 months while deduction of PT from employee salary may happen each month or once every six months.
In this post we will focus on issues pertaining to deducting and remitting PT in Chennai where PT remittance should be made to the Chennai Corporation once every six months — typically in October for the first half of the year ending September and in April for the second half of the year ending March. “Year” refers to period starting April 1 of a calendar year to March 31 of the next calendar year.
Currently (Feb 2013), Profession Tax for employees based in Chennai is calculated as per the below slabs.
| Salary for the half year in Rs | Profession Tax for the half year in Rs |
| Less than or equal to 21,000 | Nil |
| 21,001 – 30,000 | 100 |
| 30,001 – 45,000 | 235 |
| 45,001 – 60,000 | 510 |
| 60,001 – 75,000 | 760 |
| 75,001 and above | 1095 |
During a half-year (Apr – Sep or Oct – Mar) if an employee works for an organization in Chennai, the organization should deduct and remit PT as per the above slabs.
Many organizations deduct PT on a monthly basis by way of equal installments across a half –year period. For example, if an employee earns more Rs 15,000 each month (more than Rs 75,000 in a half-year), a sum of Rs 1095 should be deducted towards PT (please see the PT rate table above). Organizations following the equated monthly PT deduction method deduct Rs 182 (Rs 1095/6) each month towards PT in the monthly payroll. At the end of 6 months the organization will have deducted Rs 1095** for PT remittance. All is well.
**Rs 182 x 6 is actually Rs 1092 and not Rs 1095. This rounding-off problem can be easily solved by simply adding Rs 3 to the PT deduction amount during payroll in any of the months during the half-year period.
What happens if the employee does not work for the entire half-year period but leaves the organization at the end of say, 3 months? For example, let us assume that the employee works from 01-Apr-2012 to 30-Jun-2012 during the half-year period.
The company will have deducted Rs 546 (Rs 182 x 3) for the 3 months as per the equated monthly PT deduction logic. For the 3 months, the employee earned Rs 45,000 (this is the half-yearly salary since the employee leaves the organization), and for Rs 45,000 the organization should have deducted only Rs 235 as PT (please see the PT rate table above). In addition, Rs 546, the deducted PT amount, does not fall in any PT slab as specified by the Chennai Corporation. Ideally, the organization should refund Rs 311 (PT deducted in excess) to the employee. In practice, most organizations just remit whatever PT is deducted from employee salary. We have come across instances where PT authorities have questioned the basis of PT deduction when PT amounts do not fall under any PT slab.
There can also be instances when the equated PT deduction logic can lead to under-deduction of PT.
Let us assume that an employee earns Rs 7,000 per month (Rs 42,000 in a half-year period). The PT deduction for a half-year period should be Rs 235 (as per the PT slabs). As per the equated PT deduction logic, the organization will deduct Rs 39 per month (Rs 235/6). If the employee leaves the organization at the end of 5 months, the organization will have deducted Rs 195 as PT. However for an employee salary of Rs 35,000 (Rs 7,000 x 5 months), the organization should have deducted Rs 235. This is a case of under-deduction of PT.
The flaws of the equated PT deduction logic will come to the fore for any employee who does not work the entire six months in a half-year period.
If you are in favour of the equated PT deduction method and argue that you can always adjust the excess or short PT in the final settlement processing if an employee quits before the end of the half-year period, we will simply say that this will not be possible in case an employee absconds or does not have adequate settlement salary to recover the short PT in full.
In other words, the equated PT deduction logic is flawed and is better not followed. Of course, if an organization does not deduct PT each month but deducts PT only once every half year, this problem will not occur. With regard to organizations which follow monthly deduction of PT, we will examine how we can deduct PT in a more scientific manner in each month’s payroll in the next post.
