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.

Salary for the half year in RsProfession Tax for the half year in Rs
Less than or equal to 21,000Nil
21,001 – 30,000100
30,001 – 45,000235
45,001 – 60,000510
60,001 – 75,000760
75,001 and above1095

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.

Posted in: Blog

Leave a Comment (15) ↓

15 Comments

  1. Ridhima May 28, 2013

    Hi,

    Thanks for sharing this post with us but i have a query what if an employee left the orgainzation in Apr.13 itself say 15th Apr.13, how we will calculate his PT?

    reply
  2. Ridhima May 28, 2013

    Hi,

    Thanks for sharing this post with us but i have a query what if an employee leave the orgainzation in Apr.13 itself say 15th Apr.13, how we will calculate his PT?

    reply
    • gautham June 1, 2013

      The calculation will be based on the salary the employee receives in Apr 13 (even if he leaves the organization in Apr itself). The PT deduction amount will be as per the salary the employee receives.

      reply
  3. Ridhima October 25, 2013

    do we take leave en-cashment, incentives or notice period pay into consideration for PT calculation. What is the meaning of salary for PT calculation?

    reply
    • gautham October 30, 2013

      PT is levied by agencies of state governments and hence the salary definition for the purpose of PT calculation varies from one state to another. However, typically, salary or Wages for the purpose of PT calculation includes pay, dearness allowance, perquisites and all other elements of remuneration including allowances as defined in Section 17 of the Income Tax Act, 1961.

      reply
  4. vidyesh October 9, 2014

    Very logical method to calculate PT.
    As per my understanding – the PT is to be deposited in Feb, Aug.
    Please confirm this understanding is correct?

    Due to this assumption the following two scenario arises
    1. To deposit PT in FEB: Feb, Mar Gross Salary need to be Projected.
    2. Joiners in Month: Method of PT deposition in case of employees joined in FEB, MAR.

    reply
    • gautham October 10, 2014

      1. To deposit PT in FEB: Feb, Mar Gross Salary need to be Projected.

      Ans: Yes, it needs to be projected. However, there is a possibility of over or under deduction of PT for the 6 month period if there were to be loss of pay and pay hike in Mar or Sep.

      2. Joiners in Month: Method of PT deposition in case of employees joined in FEB, MAR.
      Ans: You can deduct PT for new joinees in Mar as per the PT slabs and remit the same

      reply
  5. vidyesh October 10, 2014

    Sir,
    Very logical method.

    I want to confirm, the deposition period of PT for Chennai. As per my knowledge it is in FEB and AUG month.
    In such scenario how do calculate PT for joiners in MAR & SEP month.

    reply
    • gautham October 10, 2014

      In practice, the Corporation of Chennai accepts PT remittances until 31-Mar/30-Sep without demanding penal interest. Hence, many companies run payroll in Mar/Sep after including new joinees and deduct PT for new joinees before remittance.

      reply
  6. Rajesh October 17, 2014

    By this logic , sal is > 7500, we must deduct 1095 in first month, employees may object to this.

    reply
    • gautham October 21, 2014

      Please note that the PT deduction is done only after the employee receives a salary of more than Rs 75,000. Hence, the employee should have no objection to this. We know of a number of companies including our own clients where this happens.

      reply
  7. SARAVANAN February 17, 2015

    Dear Sir,
    Thanks for detailing the professional tax.
    Is overtime and other allowance included for professional tax calculation?
    Please clarify.

    Thanks in advance.
    Saravanan. M. J

    reply
  8. Rakesh October 13, 2015

    Hi,

    Is there any PT slab applicable for Goa. Pls share the relevant notification if available.

    reply
    • gautham October 13, 2015

      The Govt of Goa does not levy PT currently.

      reply

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