Are Contract Employees Required to Pay Professional Tax? Seeking Clarification

I am working with the HR department. Could you please clarify whether contract employees are required to pay professional tax?

Regards,
Karthik.

According to my knowledge, contract employees who work on an hourly basis do not require PT deductions. In this case, TDS is applicable.

Regards,
Pankti

Hi Pankti, in my previous organization, employees under CLRI had PT deductions. Can anyone clarify if there is a specific reason for this?

Regards,
Karthik.

The contract labor is not direct labor. Their wages are paid by the contractor. The employer will pay a lump sum to the contractor for the payment of wages to their labor. Hence, management is not responsible for PT.

Regards,
D. Gurumurthy
HR & IR Consultant

Understanding Profession Tax Obligations

Profession tax is not solely a tax on salary; it is payable by any person who receives revenue. It is required from anyone who receives revenue, regardless of whether there is any legal relationship with the payer. For instance, a doctor or an advocate needs to pay profession tax, but there is no legal relationship with the person who pays it, i.e., the client. Therefore, it is not the source that is relevant, but the place of earning that matters.

The profession tax is a subject of state and local administration, and they have the right to collect it, provided the income or revenue is earned by any person by performing a 'profession' within the local boundaries. Certainly, the principal employer's liability towards the payment of profession tax for workmen engaged through a contractor will arise only when the contractor fails to pay it to the local administration. However, the principal employer cannot escape responsibility by claiming a legal relationship only with the contractor. Like his responsibilities under other Acts, such as EPF, ESI, or Minimum Wages, he must ensure that the contractor has paid the profession tax on time.

Regards,
Madhu.T.K