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Deduction of half-yearly Profession Tax in Chennai – Part II

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.

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.

**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.

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.

**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.