Understanding Professional Tax vs. TDS: What Consultants Need to Know About Tax Deductions and Refunds

Hi, I want to know the difference between professional tax and TDS (5.20%). Are they one and the same thing? If an individual is working as a consultant, would they be paying TDS but also need to pay professional tax? Moreover, if someone is at 16k pm and pays 5.2% TDS, how can it be claimed back? Would it be claimed back at the time of filing tax return?

Similarly, if someone is at 2 lacs pm, by paying only TDS, would they not be paying less tax compared to when they work as a permanent employee? Eagerly looking for your replies.

Thank you a lot for your explanation, Kugan. However, I still have a couple of doubts. I hope you wouldn't mind answering it. You have mentioned that if the company is paying a payment of more than Rs. 20,000/- to a single party, the party may be a service provider to that company/rent/portal (Monster). The company has to deduct the TDS amount as per the Act. What about a party earning less than 20k? Does it include consultants as well? If someone is working as a retainer for less than 20k, are they supposed to pay TDS? Who all are entitled to pay professional tax? And any amount above 75,000 would remain 810? Be it 1 lac or 2 lacs? I'm sorry for bombarding you with questions, but I'm very new to all this. In fact, I'm a fresher. I have recently completed MBA in HR and have joined a company which has recently started off. They don't have an HR department, and I'm the only one. That's how I have landed up in deep waters. Thanks for your help and time.

You have mentioned that if the company is paying a payment of more than Rs. 20,000/- to a single party, the party may be a service provider to that company / rent / Portal (Monster). The company has to deduct the TDS amount as per the Act. What about a party earning less than 20k? Does it include consultants as well? If someone is working as a retainer for less than 20k, do we have to deduct TDS? Are they supposed to pay TDS?

Answer: TDS should be deducted from the source of income payable to the service provider by the company. If it is less than 20k, there is no need to deduct TDS.

Who is entitled to pay professional tax? The professional tax amount is 42,000 per annum for those earning 21,001 and above. Any amount above 75,000 would remain at 810? Be it 1 lakh or 2 lakhs? Yes, please check for your state.

If you want more details, you can contact me at kuganparamasivam@gmail.com.

Regards, Kugan Paramasivam 09840485689

Hi Shweta,

I'm replying only about the TDS part of your query. I'm not aware of Professional Tax.

There are mainly 4 kinds of services which a company uses regularly - contractors, professionals, rent, and sometimes advertising. The TDS criteria for each of these are as follows:

1. Contractors - means any contract for the supply of labor for a works contract. Here 'works' include catering, advertising, broadcasting, transporter services either for goods or people. The maximum amount where TDS is not required to be deducted is a single payment of up to 20,000, or a total annual payment of up to 50,000 payable to the recipient.

Which means if in a year you are paying somebody 4 times (let's say) under any contract whose value is more than 50,000 in a year, the normal practice is to deduct TDS on all the installments even if the value of each installment is less than 20,000. This is because you already know you have to pay more than the exempted amount by the end of the year. But if you do not have a contract, and the same contractor does individual jobs for you 4 times in a year, then so long as the individual payments do not exceed 20,000, you don't have to deduct TDS. However, as soon as the sum total of the payments exceeds 50,000 in 1 year, you have to deduct the total TDS from the total payments made so far from the next individual payment. The base TDS rate is 2%.

2. Advertising - this is clubbed under contractors. The exempted amounts and treatment and TDS rate are the same as above. However, if the client is releasing the payment directly to the media, not through any advertising agency, then the base rate is 1%.

3. Professional Service - this I think would be the largest category for you. This would include placement consultants, job portals, retainers, etc. The exempt limit is an aggregate of 20,000 annually. The base rate is 5%.

4. Rent - Exempt limit is 1,20,000 annually. Advance rent and non-refundable deposits are also subject to TDS. If the property is co-owned by 2 or more owners, then the exempt limit will apply to each of the co-owners separately. The base rate if the recipient is an individual is 15%, in all other cases it is 20%. Also, if there are two lease contracts, one for the property and the second for the furniture and fixtures in that same property owned by the same landlord, then the total of the lease amounts under both the contracts is to be considered while calculating the TDS.

Please note that the final TDS rate will also include surcharge and cess. This depends on the amount paid and the kind of recipient - individual, cooperative society, or corporate entity. Kugan Paramasivam has already given the rates briefly.

Hope this is actually useful and does not confuse you even more.... :D

Regards,

Devjit

Thank you a lot, Devjit! This is what I was looking for as far as TDS is concerned. It's very helpful.

When is professional tax applicable to a company? If a company has 15 employees, it is necessary to pay professional tax. Is there any clause mentioning the minimum number of employees for which a company is not liable to pay professional tax?

Warm regards,
Nira.

Is professional tax applicable on commission paid by the employer to the employee?