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Karnataka Professional Tax

Article 276, Clause 2 of the Indian Constitution covers the provision concerning professional tax in the country. State governments impose a professional tax on the individuals who are employed in governmental, private and non-governmental organizations. The quantum of levy varies according to the strata of income, but wouldn’t exceed INR 2,500 in a year. Professional tax in the State of Karnataka is administered by the “Karnataka Tax and Profession, Trade, Callings and Employment Act, 1976.” The Act stipulates that individuals whose monthly income is above Rs. 10,000 are obligated to remit this tax. The provision isn’t applicable for professionals aged 65 and above, as well as those who have held their respective professions for less than 120 days in a given year. In this article, we look at the various aspects of Karnataka professional tax in detail.

Designated Payers

Professional tax in Karnataka, or for that matter in any other state, must be remitted by individuals and business entities engaged in any profession, trade, callings or employment. To be more precise, the following persons are required to pay professional tax:

Employees

Employees whose salary/wages is above Rs. 10,000.

Employers

• Sole Proprietor.
• Registered or unregistered partnership firm.
• Limited company (which may be private/public).
• Limited Liability Partnership (LLP).
• Corporations and Corporate Bodies.
• Hindu Undivided Family (HUF).
• Trust/Society/Club/Association.

Every branch of a firm; company; corporation/other corporate bodies; any society; club or association.

The tax liable by an employee will be deducted from his/her salary by the employer, who will pay the tax to the Government on behalf of the employer.

Employer Registrations

Karnataka’s professional tax regulations mandate an employer to avail registrations of the following kinds:

• Professional tax employer registration.
• Professional tax employee registration.

Let us now understand these in detail:

Professional Tax Employer Registration

Professional tax employer registration requires for all businesses, regardless of the number of workforces deployed in it. Upon registration, the employer will receive a Certificate of Enrollment from the Profession Tax Office. The document will include details of the tax payable by the employer and the stipulated date of payment. Failure to remit the tax within the specified date may lead to penal consequences.

For the awareness of the employers, the tax rate for businesses established under the Karnataka Shops and Commercial Establishments Act, 1961, is herewith specified. The Government declares the tax rate based on the strength of employees:

• No employees – No tax implications.
• One to five employees – INR 1000.
• Five to ten employees – INR 1,500.
• More than ten employees – INR 2,500.

Professional Tax Employee Registration

This kind of registration deals with an employee’s obligation, which is to be met by an employer. As previewed before, employers require to don the employee’s gloves by remitting their property tax dues, which can be deducted from the salary of the latter. As employees earning more than Rs. 10,000 in a month qualify for the payment, businesses employing such personnel must obtain the Professional Tax Employee Registration. This registration is certified with a Certificate of Registration, which can be obtained by the employers who have the Certificate of Registration.

Monthly Payment and Return

Employers, whose workforces earn a salary scaling to INR 10,000 or above must remit professional taxes on behalf of the employees; the contribution towards the same is stipulated to be Rs. 200 per month. These employers, who must have the certificate of registration, must file a return within twenty days of the succeeding month depicting the salary/wages remitted and the tax deducted from the employee’s monthly salary during the previous month. Non-payment of tax or failure to file returns will result in a penalty of Rs. 250 for every month of default.

Annual Payment and Return

Businesses holding an enrollment certificate requires to pay their taxes at the stipulated rates before the 30^th of April every year. Also, all employers must file an annual return within 60 days of the expiry of the given year. The return must comprise of the salaries/wages remitted to the employees and the tax deducted during the previous year.

Digital Facility for Payment and Filing

The Karnataka Government has facilitated its taxpayers with the option of paying tax dues and filing the returns through the e-PRERANA portal of the Commercial Taxes Department. The online portal facilitates the taxpayer with various e-services such as filing enrollment application, e-payment of taxes, filing of returns, etc.

Professional Tax Rate for Financial Year 2018-19

Professional tax rates are subject to revisions every financial year. The rates for the year 2018-19 are based on salary payable to employees. The rates so determined are as follows:

• If the employees’ salary is INR 15,000 – Nil.
• If the employees’ salary is above this limit – INR 200.

Consequences of Default

Taxpayers failing to meet the compliance requirements will be dealt with the respective provisions. Here’s an overview of the various defaults and the consequences resulting from it:

Failure to obtain the certificate of enrollment – A penalty of Rs. 1,000 is payable by the taxpayer, apart from that additionally annual tax payments pending is also payable.

Failure to obtain the Certificate of Registration – Non-compliance with this obligation or in deducting and remitting the taxpayers’ quotient will force the employer to take it upon his stride to remit the tax liability by the employee. The remittance will include a simple interest of 1.25% for each month or part thereof, as well as a penalty which is equivalent to the actual liability. These penal provisions will be in place until he/she fulfils the final obligation.

Non-payment of Tax – In case of delay in payment of tax, the original tax amount along with the interest of 1.25% is applicable for each month of delay. Furthermore, the Professional Tax Officer may levy an additional amount, which will not exceed fifty per cent of the amount of tax due.

Failure to file returns – A penalty of Rs. 250 is applicable for the employer for every month of delay.

Exemptions

The following categories of persons are out of the ambit of professional tax:

• Charitable and philanthropic hospitals/nursing homes located below the taluk levels in every district of the State except for Bangalore.
• Directors of Companies registered in the State of Karnataka; duly nominated by the financial agencies owned or controlled by the State Government or other statutory bodies.
• Foreign technicians in the State and their appointments are endorsed by the Indian Government for exemption from payment of income tax for the stated period.
• Combatant and civilian non-combatant members of the Defence forces under the Army Act, the Navy Act and the Air Force Act.
• Salaried or wage-earning citizens who are blind.
• Salaried or wage-earning citizens who are deaf and dumb.
• Permit holders of single-taxi or three-wheeler vehicle.
• Institutes rendering courses for Kannada or English Shorthand or Typewriting.
• People with at least 40% of permanent disability.
• Ex-servicemen not bracketed under SI No.1 of the Schedule.
• Parents of a single child who underwent a sterilization operation; if supported by the certification of a District Surgeon of a Government Civil Hospital.
• Citizens belonging to Central Para Military Force (CPMF).
• People running higher-secondary educational institutions.