Hiring your first employees in Visakhapatnam: Andhra Pradesh professional tax for a new company

You have incorporated the company. You have an office or a desk in Visakhapatnam. Now the first two or three people are about to join, and someone asks the question: "Do we need to deduct professional tax?"

This article walks through what the state Act says an employer must do, what it costs staff, how your directors fit in, and what goes wrong when it is ignored. The law is the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act 1987 (Act 22 of 1987). Where this article says "the Act", it means that Act.

Andhra Pradesh has its own slabs, enrolment rules and penalty numbers. Use these.

Your situation in plain words

Professional tax is a state tax. The state levies it on professions, trades, callings and employments (s.4(1), the Act). It is a separate tax from income tax.

Your employees are taxed on their salary, and you must deduct and pay it. Your company, and sometimes your directors, may also be liable in their own right.

The Act defines the "local authority" for Visakhapatnam as the Municipal Corporation of Visakhapatnam (s.2(h)(i)). The Act also says no local authority may levy its own tax on professions, trades, callings or employments (s.32). So you do not pay a separate municipal professional tax on top. The state tax is the one.

Who counts as the employer

The Act defines the "employer" of a salaried person as the person or officer responsible for paying the salary or wages. It includes the head of the office or establishment, and the manager or agent of the employer (s.2(f)). "Salary or wages" includes pay, dearness allowance and all other regular remuneration, in cash or kind. It does not include bonus in any form, or gratuity (s.2(m)). So a Diwali bonus is not part of the amount you test against the slab.

What the Act makes you do

Deduct before you pay. The tax on a salaried person must be deducted by the employer from the salary, before the salary is paid (s.5(1), the Act).

Pay even if you forgot to deduct. The same section says the employer is liable to pay the tax on behalf of all such persons, "irrespective of whether such deduction has been made or not" (s.5(1)). If you skip the deduction, the cost does not fall on the employee. It falls on the company.

Register. Every assessee liable to pay tax under section 5 must obtain a certificate of registration from the assessing authority in the prescribed manner (s.6(1)). An employer who deducts under section 5 is that assessee. Registration is for employers. Enrolment is the separate certificate for people who pay their own tax (s.6(2)).

File returns. Every registered assessee must submit a return, in the prescribed form, for the prescribed periods and by the prescribed dates. It shows the salaries and wages paid and the tax deducted (s.7(1)). The return must come with a treasury challan proving full payment. A return without proof of payment is not treated as duly submitted (s.7(2)).

The deadline clock

The Act gives the registration clock in plain terms. If you were not engaged in any profession, trade, calling or employment when the Act began, you must apply "within thirty days of his becoming liable to pay tax" (s.6(3)(b)).

The Act's trigger is the day you become "liable to pay tax". It does not name the date of incorporation or the first salary day as the starting point. Work out with your CA the date on which your liability began, and count thirty days from that date. Payment of tax by enrolled persons has its own dates. For those who stand enrolled before a year begins, or enrol on or before 31 May, the tax in the enrolment certificate is payable before 30 June. Those who enrol after 31 May pay within one month of enrolment (s.10(a) and (b)). "Year" in the Act means the twelve months ending on 31 March (s.2(o)). These dates apply to the people and entities who pay their own tax, which may include your company and directors (more below).

The monthly dates for the employer's own returns and payments are set by rules. The Act sends you to "such dates as may be prescribed" (s.7(1)). Those rules are not part of the Act text. Confirm the current return dates and the filing route with the department before your first payroll.

What your staff pay

The First Schedule table sets the rate for salary and wage earners by monthly pay (entry 1, First Schedule):

• Up to ₹15,000 a month: nil.
• ₹15,001 to ₹20,000 a month: ₹150 a month.
• Above ₹20,000 a month: ₹200 a month.

Worked example. A hire on ₹18,000 a month pays ₹150 a month. A hire on ₹45,000 pays ₹200. A trainee on ₹12,000 pays nothing.

Directors: the entry people forget

Entry 5 of the First Schedule taxes "Directors (other than those nominated by the Government) of Companies Registered under the Companies Act, 1956" at ₹2,500 a year.

There is a wording point you should know. The entry names the Companies Act, 1956. Your company is almost certainly registered under the Companies Act 2013. The text of the Act on file does not itself say how the entry is applied to a company registered under the later law. Do not assume either way. Ask how the department applies entry 5 to a company registered under the Companies Act 2013 before you decide to leave your directors out. A CA can check the current practice for you.

If a director is also on your payroll, a second rule matters. A salaried person who is also covered by another entry, where the other entry's rate is more than the entry 1 rate, can give the employer a prescribed certificate. The certificate must declare that he will enrol himself and pay the tax himself. Then the employer does not deduct, and is not liable to pay for that person (second proviso, s.5(1)). The same applies to a person with more than one employer.

The proviso applies where the other entry's rate "is more than the rate of tax under entry 1". Entry 1 is charged per month (₹200 a month above ₹20,000) and entry 5 per year (₹2,500). The text on file does not say how a monthly rate and an annual rate are compared for this purpose. Whether the proviso is open to a salaried director is therefore a point to confirm with a CA before you stop deducting. If it does apply, the director must hold his own enrolment certificate (s.6(2)), and you should keep the certificate he gave you on file.

The company's own entry

Do not stop at the staff and directors. The First Schedule also taxes the business. Three entries are worth reading against your facts:

• Entry 20: All companies registered under the Companies Act, 1956, that are not a dealer under the Andhra Pradesh VAT Act 2005 or the Andhra Pradesh Goods and Services Tax Act 2017, and are engaged in a profession, trade or calling with turnover of ₹10 lakh and above, pay ₹2,500 a year. This entry also names the 1956 Act, so the same wording point applies.
• Entry 8: Dealers registered under the Andhra Pradesh VAT Act or Andhra Pradesh GST Act, and shopkeepers (employers) of an establishment under the Andhra Pradesh Shops and Establishment Act 1988, pay by annual turnover. Below ₹10 lakh the tax is nil. From ₹10 lakh to ₹50 lakh it is ₹1,250 a year. Above ₹50 lakh it is ₹2,500 a year.
• Entry 40: Any other person engaged in a profession, trade, calling or employment with annual income of more than ₹1,80,000, who is not exempt, pays ₹2,500 a year.

Entry 40 applies to persons not covered by the preceding entries and excludes those exempted under section 31 of the Act. Which entry fits depends on what the company does and whether it holds a GST registration in Andhra Pradesh. Put this to your CA. The Act treats every branch of a company as a separate "person" (Explanation to s.2(j)).

Step by step

• Fix the date you become liable. The thirty days run from the day you become liable to pay tax (s.6(3)(b)). Confirm that date with your CA.
• Collect the facts. Company name and registration details, office address in Visakhapatnam, the employee list with monthly salary, and which directors are paid.
• Apply for the certificate of registration to the assessing authority in the prescribed form (s.6(1) and (3)). The form and the filing route are set by the rules, not the Act, so confirm them with the department.
• Apply for enrolment for the company itself if one of the entries above applies to it (s.6(2)).
• Get declarations from directors who will pay for themselves (s.5(1), second proviso).
• Set up your payroll software or sheet with the entry 1 slabs. Deduct before paying the salary (s.5(1)).
• Pay the tax and file the return with the treasury challan, on the dates the rules prescribe (s.7(1) and (2)).
• Keep the proof. The authority may reassess within four years from the end of the year concerned (s.9).

What not to do

• Do not deduct and keep it. An employer who deducts the tax and then fails to pay it is an assessee in default, and owes interest for each month or part of a month it stays unpaid. The interest rate is as prescribed (s.11(1)).
• Do not skip deduction. You owe the tax whether or not you deducted it (s.5(1)).
• Do not file a return without the challan. It is not treated as duly submitted (s.7(2)).
• Do not give wrong facts on the application. A deliberately false application can draw a penalty of ₹100 to ₹1,000 (s.6(6)).
• Do not treat directors as someone else's problem. In a company, every person in charge of and responsible for the conduct of the business is deemed guilty of an offence by the company, unless he proves the offence happened without his knowledge or that he used all due diligence to prevent it (s.23(1)). A director, manager, secretary or other officer can also be proceeded against where the offence is due to his consent, connivance or neglect (s.23(2)).

What the penalties look like

Read these as the range the law allows, not what every case pays.

An assessment order must be paid within fifteen days of the demand notice (s.8(4)). You have thirty days from service of an order to appeal (s.15(1)), and the appeal is not entertained unless 12.5% of the disputed tax, penalty or interest, besides the admitted tax in full, is paid (s.15(2)).

What to do now

• Next step: Fix the date you become liable and apply for the employer certificate of registration, for your Visakhapatnam office (s.6(1)).
• Deadline: Apply within thirty days of becoming liable to pay tax (s.6(3)(b)). Then deduct from the first salary you pay (s.5(1)).
• If you miss it: A wilful delay by an employer can cost ₹10 to ₹20 for every day (s.6(5)). Tax you did not deduct is still the company's to pay (s.5(1)).

Have a CA review your facts before you act or file.

FAQs

Does a company with two employees on ₹14,000 and ₹16,000 need to register?
The ₹16,000 employee is in the ₹150 slab (entry 1, First Schedule), so there is tax to deduct and section 5 applies. Confirm with a CA.

Our employee works for us and for another employer. Who deducts?
If a person is simultaneously employed by more than one employer and gives each a prescribed certificate that he will enrol himself and pay the tax, none of the employers deducts or is liable (second proviso, s.5(1)). Without that certificate, you deduct.

Does the company pay professional tax as well as the staff?
It can. The First Schedule has entries for companies (entry 20), dealers and shopkeepers (entry 8) and others (entry 40). Which one applies depends on your facts. Section 6(2) requires enrolment for those who pay their own tax.

Is bonus part of the salary I test against the slab?
No. The Act's definition of salary or wages excludes bonus in any form and gratuity (s.2(m)).

---

See Also

• Professional tax in Bengaluru: what a new company must do before its first salary
• Hiring your first employees in Hyderabad: Telangana professional tax registration and deduction
• Shops and establishments registration for a Bengaluru office