What is professional tax: These employees might have to pay it if working from home
Dec 5, 2023
Synopsis
Even if an employee is working from his/her home they need to pay professional tax if their office is registered in a state where professional tax is levied. There could even be situations where an employee is working from home in a state which does not levy professional tax, yet the employee has to pay professional tax. There could be other such situations also. Read here to find out.
You may have to pay professional tax if you are this type of employeeGetty ImagesYou may have to pay professional tax if you are this type of employee .
Professional tax is a tax levied by state governments on all individuals earning above a specified level, irrespective of whether they are salaried or self-employed. An individual can get a tax exemption under the Income-tax Act, 1961 on the professional tax paid.
However, each of the state governments levying professional tax has drafted their own law. "Article 276 of the Constitution empowers States to levy taxes on professions, trades, callings, and employments," says Manmeet Kaur, Partner, Karanjawala & Co, a law firm.
The applicability of professional tax, the tax rate based on the slabs and other aspects of professional tax differs from state to state.
However, there is no clarity if professional tax is applicable if a salaried employee is working from home. Hence, tax experts advise salaried individuals to take a conservative approach to interpreting the law about the applicability of professional tax in work-from-home cases.
"Professional tax in work-from-home cases is still a grey area and no proper guidelines or legislations have been framed in this regard. Moreover, the issue has not been dealt by the Courts in India," says Kaur.
What is the criteria for applicability of professional tax in general
"The main criteria for determining applicability of professional tax is whether the office of the company where the employee is mapped to be working is registered with the relevant state government and has a professional tax registration certificate (PTRC)," says Neha Beriwala, senior manager, indirect tax, S.K Patodia and associates, a CA firm.
It is mandatory for the company to register its office (head or branch) in the state if it meets the threshold criteria defined in the respective state's professional tax law. The threshold criteria, however, varies from state to state.
"The requirement for obtaining a PTRC for each branch of a company in India can vary depending on the regulations of the specific state in which the branches are located. In some states, professional tax registration may be required for each branch of the company, regardless of whether the branch processes the payroll of employees or not. In other states, professional tax registration may only be required for the branch that processes the payroll of employees," says Abhishek Soni, co-founder, Tax2Win, a tax filing assistance company.
In a nutshell, professional tax will be applicable if either the branch office where the employee is working or the office paying salary is registered as per the state laws. If the head office is registered but not the branch office or office paying salary, then professional tax will not be applicable. Do note that no state government can levy more than Rs 2,500 in a year as professional tax.
How is professional tax applied in work from home cases
The professional tax laws are not drafted or amended keeping in mind work-from-home cases.
"The respective Professional Tax Act of states have not been drafted with work from home or remote work in mind. In work-from-home cases, a situation could arise that the remote workers are at a place where professional tax is levied while the employer's office is located at a place where no professional tax is levied, and vice versa. This can create arguments which may lead to litigations. Presently inter-state levy of professional tax for remote workers remains untested by Courts," says Kaur.
The law is not specifically clear about these points:
If professional tax is applicable for an employee working from home in a non-professional tax state, however, the employee is mapped, and salary is paid by the office registered under professional tax.
If professional tax is applicable for an employee working from home in a non-professional tax state for a non-professional tax office in another state but is getting paid salary from an office registered under professional tax in another state. Another derivation can be where both the home state and the office paying salary are registered under professional tax for their respective states, but the branch office of the employee is not registered under professional tax law.
If professional tax is applicable for an employee working from home in the office in a state where professional tax is applicable. The employee works for a branch office that is registered under professional tax. Salary is paid by the professional tax registered office in another state.
What are the criteria that determine applicability of professional tax in WFH cases
A salaried individual must satisfy any of the two criteria for professional tax to be applicable:
(1) Branch office is registered under professional tax where the employee is mapped
In this criterion, the employee is mapped to work in a particular branch office which is registered under the Professional tax Act of the respective State.
Let us understand this with an example. Suppose Anil works from home in Delhi for the Mysuru branch office of a Bengaluru-based company. The company's Bengaluru head office and Mysuru branch are registered under the professional tax in Karnataka. As the company's branch is registered under the Karnataka Tax on Professions, Trades, Calling and Employment Act 1976, professional tax will be deducted from Anil's salary.
"Here in this case cited above, since the employee (Anil) is working for Mysuru, Karnataka branch which processes the payroll, the employer should ideally obtain a separate registration for their branch as per the Karnataka Tax on Professions, Trades, Calling and Employment Act 1976 and deduct taxes as per the specified rules irrespective of the fact that the employee is working from home," says Dr. Suresh Surana, founder, RSM India, a tax and business consulting group.
(2) Salary is being paid by office registered under professional tax
Usually, salary is processed by the branch office where the employee works. This is called decentralized payroll processing. However, there could always be cases where payroll is processed from a single office for all employees irrespective of where the employee works. This is known as called centralized payroll processing.
Let us say an employee is working from his home in Delhi for Stuartpuram, Andhra Pradesh branch of a Bhuj, Gujarat-based company. The salary is credited from the Gujarat head office.
According to Amit Gupta, Partner, Saraf and Partners, a law firm, "For the purpose of taxation, while the point of payroll process might be important for deducting professional tax, it should not be an absolute criterion. The centralized salary processing from an office situated in a state where no professional tax law is applicable should not render the legal intention behind levying of professional tax law obsolete."
"Hence, professional tax needs to be paid if the office where the employee is employed is registered under professional tax. This tax deduction is valid even if the salary of the said employee is paid through a centralized payroll processing center located in a state where no professional tax is levied," says Gupta.
The key takeaway is that if the branch office is registered under professional tax of the state government, professional tax must be paid, even if payroll is not made from that particular branch office.
According to Avinash Shekhar, CEO, TaxNodes, an income tax return (ITR) filing assistance platform, "If both the offices (branch and payroll office) are registered under professional tax law, then the office processing the payroll would be liable for deducting and paying professional tax in that state on behalf of their employees instead of the branch office, registered under professional tax law of the respective state, where the employee works."
[The Economic Times]
