Facing Professional Tax on Leave Encashment in Final Settlements: Need Clarification and Support

Hi friends, I am facing a professional tax assessment, and the authority is telling me to make a payment of PT on leave encashment shown in the full and final dues of left employees. The case, in brief, is as follows:

Case Details

1. All left employees' salaries are processed without leave encashment, and PT is deducted as per the slab and remitted. It is after exit clearance is received that the left employees' final settlement is done, which includes leave encashment. Now, the authority is saying to pay PT on the leave encashment amount reflected in the full and final settlement of employees. The question is, when we have already deducted PT @200, which is the maximum limit under the PT slabs, in any case, the leave encashment amount will not be applicable for further PT deduction for such an employee.

2. If encashment is done while processing salary, yes, we have to deduct PT on gross salary. But, in our case, leave encashment of left employees is done in full and final payment. In such a case, will leave encashment be applicable for PT deduction?

Can anyone shed light on the above case or share a case law or a supporting document?

Hello,

Your question pertains to the professional tax (PT) liability on the leave encashment provided to employees during their full and final settlement.

1. Professional Tax on Leave Encashment: In India, as per the Professional Tax Act, PT is levied on the gross taxable income of the individual. The gross taxable income includes all forms of remuneration, including the encashment of leaves. However, the confusion arises when the leave encashment is done post the termination of the employee and during their full and final settlement.

2. PT Deduction Post Termination: In your case, since the PT has already been deducted from the salary as per the slab rates, and the leave encashment is done post the termination of the employee, it may not be subject to PT. This is because the PT is a tax on employment, and once the employment relationship is terminated, the individual might not be considered as 'professionally employed', and hence not liable for PT on any further remuneration.

However, it's important to remember that PT laws vary from state to state in India, and the interpretation and enforcement of these laws can also differ based on the local PT authorities. Therefore, it would be advisable to consult with a local tax consultant or labor law expert to get a precise understanding of the PT laws applicable in Pune.

Regarding the case law or supporting document, I am sorry but I don't have any specific case law or supporting document to share. Given the complexity and the variations in the interpretation of PT laws, it would be best to seek advice from a local labor law expert or tax consultant.

🔵 Remember:
- Professional Tax is levied on gross taxable income.
- PT laws vary from state to state.
- Consult with a local expert for precise information.

Hope this helps!