Hiring your first employees in Hyderabad: Telangana professional tax registration and deduction

You have incorporated a company in Hyderabad. The first offer letters are going out. Someone on the team says, "We also need professional tax." They are right to raise it. The Act has no headcount test; what matters is how much each person is paid.

The law is the Telangana Tax on Professions, Trades, Callings and Employments Act, 1987 (the "Act"), adapted to Telangana from the Andhra Pradesh Act by a notification dated 18 September 2015.

One limit up front. The Act leaves several things to "the prescribed manner" and "the prescribed form", meaning rules and notifications. Portal steps, the exact monthly due date and the interest rate are not in the Act. We leave them out rather than guess. Check the current figure and procedure on the Telangana Commercial Taxes Department portal before you act.

Your situation: first hires, no payroll yet

Professional tax is a state tax on people who earn from a profession, trade, calling or employment in the State. The Act says every person engaged in one of these in Telangana, and falling in a class listed in the First Schedule, is liable to pay tax at the listed rate (s.4(2), the Act).

For a salaried person, the law does not ask the employee to pay. It puts the work on you. The Act says the tax payable by a person earning a salary or wage "shall be deducted by his employer" from the salary or wage before it is paid (s.5(1), the Act).

Two words matter here.

• Employer. The Act defines the employer of a salaried person as the person or officer responsible for paying the salary, and it includes the head of the office or establishment and the manager or agent of the employer (s.2(f), the Act). For a company, that points to the company and the officers who run its payroll. Ask your CA who signs for the company.
• Salary or wages. The Act says this includes pay, dearness allowances and all other remuneration received on a regular basis, in cash or kind. It does not include bonus in any form, or gratuity (s.2(m), the Act). The definition also reaches items by reference to section 17 of the Income-tax Act, 1961, so ask your CA how that cross-reference reads today. So your payroll sheet needs a split between regular pay and bonus before you test the slab.

What the law requires of you today

There are two separate duties.

Duty one: deduct, and pay on behalf of the employees. You deduct the tax from each employee's salary before paying it. Then comes the sentence that catches new founders. 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), the Act). If you forget to deduct, you still owe it.

Duty two: get a certificate of registration. 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), the Act). "Assessee" means a person or employer by whom tax is payable under the Act (s.2(b), the Act). An employer who must deduct tax on salaries is therefore an assessee and must register.

Registration is for you as an employer. Enrolment is a different certificate, for people who pay their own tax and are not salaried people whose tax is paid by an employer (s.6(2), the Act). So your employees do not enrol for the salary deduction. You register. Some of your people may need enrolment for other reasons, as covered below.

The slabs: what you deduct from a salary

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

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

Test each person against these bands every month, using regular pay as defined in section 2(m) of the Act. A person at ₹14,000 a month has no deduction. A person at ₹18,000 has ₹150. A person at ₹35,000 has ₹200.

Directors are a separate entry

The First Schedule has its own entry for directors, other than those nominated by the Government, who draw remuneration from a company or companies. The rate is ₹2,500 a year (First Schedule, entry 5, the Act).

Read this entry carefully, because the words are specific. It names companies "registered under the Companies Act, 1956". Your company is almost certainly registered under the Companies Act, 2013. A footnote in the published copy says "See now the Companies Act, 2013", but the entry's own words are unchanged. Whether a director of a 2013 Act company falls in entry 5 is not something this article can answer from the Act's words. Take it to your CA before you assume either way.

Other entries

The Schedule lists many other classes. Entry 8 covers Telangana VAT-registered dealers (or dealers liable to be registered), including shopkeepers who are employers of an establishment under the Telangana Shops and Establishments Act, 1988, by annual business turnover: nil below ₹10 lakh, ₹1,250 a year from ₹10 lakh to ₹50 lakh, ₹2,500 a year above that (First Schedule, entry 8, the Act). Ask your CA whether it reaches the business itself.

The deadline clock

Here is what the Act actually says about timing.

• Registration: thirty days. An assessee who was not engaged in any profession, trade, calling or employment when the Act began must apply "within thirty days of his becoming liable to pay tax" (s.6(3)(b), the Act). For a new company, the safest reading is that the clock starts when you first become liable under section 5. Treat the date of your first salary above the nil band as day one and apply well inside the thirty days.
• Grant of the certificate. The assessing authority must make the enquiry it needs and, within thirty days of receiving an application that is in order, grant the certificate (s.6(3), the Act).
• Annual payment for enrolled persons. If you or a director must pay tax by enrolment, the tax for the year, as shown in the enrolment certificate, is paid before 30 June if the person was enrolled before the year began or on or before 31 May. If enrolled after 31 May, it is paid within one month of the date of enrolment (s.10, the Act).
• Returns. Every registered assessee must submit a return to the assessing authority in the form and for the period that the rules set (s.7(1), the Act). The return must show the salaries and wages paid and the tax deducted, and must come with a treasury challan proving payment of the full tax due; a return without that proof is not treated as duly submitted (s.7(2), the Act). A late return can draw a penalty of not less than ₹5 and not more than ₹100 for each day of delay, after a hearing, where there is no reasonable cause (s.7(3), the Act). The Act itself does not fix the due date. Look at the current rules.

Step by step

• List your payroll. Note each employee's monthly regular pay, leaving out bonus and gratuity (s.2(m), the Act), and mark the slab under entry 1.
• Check the other entries for any director (entry 5) and for the business itself (for example entry 8).
• Apply for the certificate of registration, in the prescribed form and manner, within thirty days of becoming liable (s.6(1) and s.6(3), the Act).
• Deduct on every payday, before paying the salary (s.5(1), the Act). Show it on the payslip.
• File returns and pay as the rules prescribe (s.7(1), the Act).
• Self-paying employees. If an employee is also covered by another entry with a higher rate than entry 1, or works for more than one employer, they may give you a certificate in the prescribed form saying they will enrol and pay the tax themselves. Then you do not deduct and are not liable for that person (second proviso to s.5(1), the Act). Keep the certificate on file.

What not to do

• Do not wait for a "bigger team". Liability follows the salary bands in the Schedule, not a headcount (s.4(2), the Act).
• Do not skip a deduction because payroll software was not set up. You owe the tax anyway (s.5(1), the Act).
• Do not give false details on the application. For deliberately false information the penalty is not less than ₹100 and not more than ₹1,000 after a hearing (s.6(6), the Act).
• Do not ignore an inspection. Officers may inspect premises where a taxable employment is carried on, require books, registers and accounts, and seize those they need (s.20, the Act).

What it costs to get this wrong

The Act sets these consequences:

• Late application. If an assessee has wilfully failed to apply within the thirty days, the assessing authority may, after giving a reasonable opportunity to be heard, impose a penalty of not less than ₹10 and not more than ₹20 for each day of delay in the case of an employer (s.6(5), the Act).
• Failure to deduct or pay. An employer who does not deduct at the time of paying salary, or deducts and does not pay, is deemed an assessee in default and is liable to interest, at the prescribed rate, for each month or part of a month the tax stays unpaid (s.11(1), the Act).
• Penalty on non-payment. If an assessee fails without reasonable cause to pay within the time in the notice of demand, the assessing authority may, after hearing, impose a penalty of not less than twenty-five per cent and not more than fifty per cent of the tax due. This is in addition to the interest (s.12, the Act).
• Prosecution. An assessee who without sufficient cause fails to comply with the Act or its rules can, on conviction, be fined not less than ₹500 and not more than ₹5,000. If the offence continues, the fine is not less than ₹10 and not more than ₹50 per day during the continuance (s.22, the Act).
• People in charge of the company. When a company commits an offence, every person in charge of and responsible to the company for the conduct of its business, as well as the company, is deemed guilty and can be proceeded against. A person can escape if they prove the offence happened without their knowledge or that they exercised all due diligence to prevent it (s.23(1) and its proviso, the Act). For a founder, this is a good reason to put professional tax on the payroll checklist from day one.

What to do now

• Next step: Work out who on your payroll is above ₹15,000 a month in regular pay, and apply for the certificate of registration as an employer (s.6(1), the Act; First Schedule, entry 1).
• Deadline: Apply within thirty days of becoming liable to pay tax (s.6(3)(b), the Act). Deduct from every salary you pay from the first payday (s.5(1), the Act).
• Consequence of delay: A penalty of ₹10 to ₹20 a day for a wilful delay in applying (s.6(5), the Act), interest on tax not deducted or paid (s.11(1), the Act), and a further penalty of 25 to 50 per cent of the tax due on non-payment after a demand (s.12, the Act).

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

FAQs

Do I have to register if all my staff earn ₹15,000 a month or less?
The First Schedule rate for that band is nil (entry 1). The Act ties registration to being "liable to pay tax under section 5" (s.6(1), the Act). Ask your CA or the department whether a nil-liability employer still needs a certificate, and register as soon as anyone crosses ₹15,000.

Do my employees need to register or enrol?
Not for the salary deduction. Enrolment is for assessees other than salary earners whose tax is paid by their employer (s.6(2), the Act).

Is bonus counted when I check the slab?
No. The Act says salary or wages do not include bonus in any form, or gratuity (s.2(m), the Act).

Does a director of my company pay professional tax?
Entry 5 of the First Schedule sets ₹2,500 a year for directors who draw remuneration from companies "registered under the Companies Act, 1956". Your company is probably under the Companies Act, 2013, so check how the entry applies to you with a CA.

What if I forgot to deduct for a few months?
The employer is liable whether or not the tax was deducted (s.5(1), the Act). Interest runs for each month or part of a month it stays unpaid (s.11(1), the Act). The section 12 penalty follows a demand, so paying early is safer.

Where do I find the monthly due date and the interest rate?
They are set by rules and notifications, not in the Act text. Check the current figure on the Telangana Commercial Taxes Department portal before you file.

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See Also

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