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The Government of Karnataka on February 24, 2023, notified that bill Karnataka Tax on Profession, Trades, Callings and Employments (Amendment) Act, 2023 to further amend the Karnataka Tax on Profession, Trades, Callings, and Employments Act, 1976.

As per the notified schedule of the amended professional tax act, the limit to deduct the professional tax has been increased from Rs 15000 to Rs 25000/- in Karnataka State.

The salaried employees who are earning a salary between Rs 15000 to Rs 24999/- will earn Rs 2400/- extra per annum from 1st April 2023. That means there will be no more professional tax deductions from April 2023 and onwards if the salary is 24999 and below. Earlier the thresh hold limit was Rs 15,000/-

This amendment is a welcome move by the state government of Karnataka. Even though the state government may incur revenue loss, the middle class will get benefit from this amendment.

Small business units will also save some compliance costs since they need not deduct PT and file their return if the employees are earning Rs 24999 or below.

Hence the employers are bound to pay their employees the PT portion earlier they were deducting and paying to the government.

KARNATAKA LEGISLATIVE ASSEMBLY
FIFTEENTH LEGISLATIVE ASSEMBLY
FIFTEENTH SESSION

THE KARNATAKA TAX ON PROFESSION, TRADES, CALLINGS AND EMPLOYMENTS (AMENDMENT) BILL, 2023
(LA Bill No. 06 of 2023)

A Bill further to amend the Karnataka Tax on Profession, Trades, Callings and Employments Act, 1976.

Whereas, it is expedient to amend the Karnataka Tax on Profession, Trades, Callings and Employments Act, 1976 (Karnataka Act 35 of 1976), for the purposes hereinafter appearing;

Be it enacted by Karnataka State Legislature in the Seventy-fourth year of the Republic of India as follows.-

1. Short title and commencement.- (1) This Act may be called the Karnataka Tax on Profession, Trades, Callings and Employments (Amendment) Act, 2023.

(2) Save as otherwise provided, the provisions of this Act shall come into force with effect from the 1st day of April, 2023.

2. Amendment of section 2.-In the Karnataka Tax on Profession, Trades, Callings and Employments Act, 1976 (Karnataka Act 35 of 1976) (hereinafter referred to as the Principal Act), in section 2,-

(i) after clause (a), the following clauses shall be inserted, namely:-“(aa) “agent” means a person who acts on behalf of another person in the course or furtherance of business;

(ab) “assessment” for the purposes of this Act, means determination of tax liability under this Act and includes self-assessment, reassessment and best judgment assessment;”; and

(ii) in clause (h), in the explanation after the words “Every branch of a”, the words and punctuation mark “proprietary concern”, shall be inserted.

3. Amendment of section 9.- In section 9 of the Principal Act, in sub-section (2), for the words “not exceeding one and half times”, the words “equal to one hundred per cent of” shall be substituted.

4. Amendment of section 10.-In section 10 of the Principal Act, in sub-section (6), for the figure and symbol “2%”, the words “one and a half per cent”, shall be substituted.

5. Amendment of section 11.-In section 11 of the Principal Act, in sub-section (2), for the words “one and a quarter per cent”, the words “one and a half per cent”, shall be substituted.

6. Amendment of section 12.-In section 12 of the Principal Act,- (i) the words and punctuation mark “, without reasonable cause”, shall be omitted; and

(ii) for the words “not exceeding fifty percent”, the words “equal to ten percent”, shall be substituted.

7. Substitution of Schedule.- For Schedule of the Principal Act and the Explanations I to V thereunder, the following Schedule and Explanations shall be substituted, namely:-

SCHEDULE

[See section 3(2)]

Rates of tax on professions, trades, callings and employments

Sl.
No.
Class of Persons Rate of tax
(1) (2) (3)
1 Salary or wage earners whose salary or wage or both, as the case may be, for a month is Rs. 25,000-00 and above Rs. 200-00
per month
2 Persons registered or liable to be registered under the Karnataka Goods and Services Tax Act, 2017 Rs. 2,500-00 per annum
3 Self-employed persons engaged in Professions, Trades, Callings and Employments, with a standing in profession for more than 2 years, including Legal practitioners, Consultants, Agents, Chartered Accountants and Actuaries, Engineers, Health care professionals, Estate Agents or Brokers, Beauty parlours, dry cleaners and interior decorators,
Journalists and Advertisement agencies, providing entertainment using Dish Antenna Cable TV, Computer Institutes selling time, Computer Training Institutes / Driving Institutes / Technical Training Institutes, Astrologers, Astropalmists, Numerologists, Vaastu consultants and Faith healers.
Rs. 2,500-00 per annum
4 Horse owners and the trainers, Jockeys, Directors, Actors and Actresses (Excluding Junior Artists),
Owners of Oil Pumps and Service stations, gas stations, electric charging stations, Owners of Nursing homes, Hospitals, Diagnostic centres, Clinical laboratories and X-ray clinics, other than those run by the Central Government, State Government and local bodies, Owners of Gymnasium and Fitness centres.
Rs. 2,500-00 per annum
5 Educational Institutions and Tutorial Colleges or Institutes other than those run by the Central Government, State Government and local bodies. Rs. 2,500-00 per annum
6 Employers of establishments defined under the Karnataka Shops and Commercial Establishments Act, 1961, employing more than five employees. Rs. 2,500-00 per annum
7 Licensed dealers of liquors, Money lenders licensed under the Karnataka Money Lenders’ Act, 1961,Individuals or institutions conducting chit funds Rs. 2,500-00 per annum
8 Owners of transport vehicle s(other than auto rickshaws) run on their own or through others under permits granted under the Motor Vehicles Act, 1988 (Central Act 59 of 1988); Goods transport agencies (GTA) and Transport contractors including forwarding and clearing agents.

Explanation- For the purposes of this entry Goods Transport Agency or GTA means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.

Rs. 2,500-00 per annum
9 Co-operative Societies registered under the Karnataka Co-operative Societies Act,1959 (Karnataka Act 11 of 1959) and engaged in any profession, trade or calling. Rs. 2,500-00 per annum
10 Companies registered under the Companies Act, 2013 (Central Act 18 of 2013) and engaged in any profession, trade or calling; Banking companies as defined in the Banking Regulations Act, 1949 (Central Act 10 of 1949) Explanation.- For the purpose of this entry, ‘banking companies’ shall include any bank whose operations are governed by the provisions of the Banking Regulation Act,1949 (Central Act 10 of 1949) Rs. 2,500-00 per annum
11 Persons other than those mentioned in any of the preceding entries who are engaged in any profession, trade, calling or employment and who are paying tax under the Income Tax Act, 1961 (Central Act 43 of 1961) Rs. 2,500-00 per annum
12 Persons other than those mentioned in any of the preceding entries who are engaged in any profession, trade, calling or employment with a minimum of two years of standing and who are not exempted by Notification issued by the State Government from time to time. Rs. 2,500-00 per annum

Explanation I.– Notwithstanding anything in this Schedule, where a person is covered by more than one entry in the Schedule, tax is payable under any one of such entries.

Explanation II.– For the purposes of determining the liability of tax, in terms of Serial No. 4 in this Schedule, the higher number of workers and / or employees at any time during the year shall be reckoned as the basis.

Explanation III.– For the purposes of this Schedule where any asset or business is held on lease by a lessee, such lessee shall be deemed to be the person liable under the Act.

Explanation IV.– No tax shall be levied under this Act on any partner of a firm which is engaged in any profession, trade or calling if the tax is paid by such firm. Explanation V.– Notwithstanding anything contained in the Schedule, every additional place of a person enumerated in any item of the Schedule shall be deemed to be a separate person for the purpose of levy of Profession tax specified in the Schedule and nothing in this explanation shall be applicable in case of additional places of business which are exclusively used as godown for storing goods.”

STATEMENT OF OBJECTS AND REASONS

The Karnataka Tax on Profession, Trades, Callings and Employments Act, 1976 was enacted to make a provision for the levy and collection of tax on Professions, Trades, Callings and Employments by the Government of Karnataka.

However, after implementing the GST Act, certain difficulties were faced. In order to overcome the difficulties, it is proposed to amend the Karnataka Tax on Profession, Trades, Callings and Employments Act, 1976 (Karnataka Act No. 35 of 1976).

In the Budget speech for the year 2023-2024, in para 443, it is proposed the Karnataka Tax on Profession, Trades, Callings and Employments (Amendment) Bill, 2023, inter alia, provides for the following, namely:-

(1) to insert new clause (aa) after clause (a) in section 2, so as to provide for a definition for the term “agent” to mean a person acting on behalf of another person in the course or furtherance of business.

It further seeks to insert new clause (ab) after clause (aa) in section 2, so as to provide for a definition for the term “assessment” for the purposes of this Act, to mean determination of tax liability under this Act and includes self-assessment, reassessment and best judgment assessment.

It further seeks to amend clause (h)in section 2, in the explanation to also include a proprietary concern to be deemed person to remove ambiguity in levying tax in case of a proprietary concern.

(2) Seeks to amend sub-section (2) of section 9,so as to reduce penalty where the escape from the assessment was due to wilful non-disclosure of information or attempt at evading the tax by the employer or the person from one and a half time the tax to equal to one hundred percent of the tax in line with GST Act.

(3) Seeks to amend sub-section (6) of section 10, so as to reduce interest rate where default is committed in payment of tax so deducted by a person making deduction from two percent per month to one and a half percent per month in line with the GST Act.

(4) Seeks to amend sub-section (2) of section 11 so as to increase the interest rate where any employer fails to deduct the tax at the time of payment of the salary or wage, or after deducting fails to pay the tax from one and a quarter percent per month to one and a half percent per month in line with the GST Act.

(5) Seeks to amend section 12 so as to reduce the penalty for non-payment of tax by a registered employer within the required time from an amount not exceeding fifty percent to a fixed amount of ten percent whether or not a reasonable cause is present.

(6) To substitute the Schedule to suit the present circumstances in the light of implementation of GST and also to rationalise the tax payable. Further the explanations are also substituted to remove ambiguity.

Hence, the Bill.

FINANCIAL MEMORANDUM

There is no extra expenditure involved in the proposed Legislative measure.

Basavaraj Bommai
Chief Minister

M.K. VISHALAKSHI
Secretary
Karnataka Legislative Assembly

ANNEXURE

EXTRACT FROM THE KARNATAKA TAX ON PROFESSION, TRADES,

CALLINGS AND EMPLOYMENT ACT, 1976 (KARNATAKA ACT 35 OF 1976)

XX XX XX

2. Definitions.- In this Act, unless the context otherwise requires,-

XX XX XX

(h) “person” means any person who is engaged in any profession, trade, calling or employment in the State of Karnataka and includes a Hindu Undivided Family, firm, company, corporation or other corporate body, any society, club or association, so engaged but does not include any person who earns wages on a casual basis;

Explanation.- Every branch of a firm, company, corporation or other corporate body, any society, club or association shall be deemed to be a person.

XX XX XX

9. Assessment of escaped tax.-

XX XX XX

(2) In making an assessment under sub-section (1), the assessing authority, if it is satisfied that the escape from assessment was due to willful non-disclosure of information or attempt at evading the tax by the employer or the person direct such employer or the person to pay, in addition to the tax assessed under sub-section (1), a penalty not exceeding one and half times the tax so assessed:

Provided that no penalty under this sub-section shall be imposed unless the employer or the person affected has had a reasonable opportunity of showing cause against such imposition.

10. Payment of Tax and filing of return by enrolled persons and deduction of tax in the case of certain enrolled persons.-

XX XX XX

(6) If default is committed in the payment of tax deducted beyond ten days after the period specified under sub-section (5), such person shall be liable to pay interest at 2% of the amount of tax due for each month or part thereof for a period for which the tax remains unpaid.

XX XX XX

11. Consequences of failure to deduct or to pay tax.-

XX XX XX

(2) Without prejudice to the provisions of sub-section (1) if an employer referred to in sub-section (1) does not deduct the tax at the time of payment of the salary or wage, or after deducting fails to pay the tax as required by or under this Act, he shall be liable to pay simple interest at one and a quarter per cent of the amount of the tax due for each month or part thereof for the period for which the tax remains unpaid.

XX XX XX

12. Penalty for non-payment of tax.- If an enrolled person or a registered employer fails, without reasonable cause, to make payment of any amount of tax within the required time or date as specified in the notice of demand the assessing authority may, after giving him a reasonable opportunity of making representation, impose upon him a penalty not exceeding fifty per cent of the amount of tax due. This penalty shall be in addition to the interest payable under sub-section (2) or (3) of section 11.

XX XX XX

[SCHEDULE]

[See Section 3(2)]

Sl.
No.
Class of persons Rate of tax
1. Salary or wage earners whose salary or wage or both, as the case may be, for a month is,-

(a) 1[ (X X X)] 1

(b) 2 [(X X X)] 2

(c) 2 [(X X X)] 2

(d) 3 [(X X X)] 3

(e) Rs.15,000 and above

1[(X X X)] 1
2 [(X X X)] 22 [(X X X)] 23 [(X X X)] 3Rs.200 per month
2. Legal practitioners including Solicitors and Notaries Public:-

(a) in the Bangalore Urban Agglomeration where standing in the profession is-

(i) less than 10 years

(ii) 10 years or more but less than 20 years

(iii) 20 years or more

(b) in any other area in the State is-

(i) less than 10 years

(ii) 10 years or more but less than 20 years

(iii) 20 years or more

Nil

Rs.1500 per annum Rs.2500 per annum

Nil

Rs.1000 per annum

Rs.1500 per annum]

3. Technical and Professional Consultants other than those mentioned elsewhere in the Schedule but including plumbing and Tax consultants:-

(a) in the Bangalore Urban Agglomeration where standing in the profession is-

(i) less than 2 years

(ii) 2 years or more but less than 5 years

(iii) 5 years or more but less than 10 years

(iv) 10 years or more

(b) in any other area in the State is-

(i) less than 2 years

(ii) 2 years or more but less than 10 years

(iii) 10 years or more

Nil

Rs.1000 per annum Rs.1500 per annum Rs.2500 per annum

Nil

Rs.1000 per annum

Rs.1500 per annum

4. (i) Chief Agents, Principal Agents, Special Agents, Insurance Agents and Surveyors or Loss Assessors registered or licensed under the Insurance Act, 1938 (Central Act IV of 1938) whose annual income is not less than [Rs.1,20,000] Rs.1500 per annum
(ii) Pigmy Agents or UTI Agents whose annual income is not less than [Rs.1,20,000]

Explanation: For the purpose of this item income shall be deemed to be the commission or any other remuneration by whatever name called, earned by the person as such Chief Agent, Principal Agent, Special Agent, Insurance Agent, Survey or Loss Assessor or Pigmy Agents or UTI Agents.

Rs. 1000 per annum
5. Chartered Accountants and Actuaries where the standing in the profession is,-

(i)Less than 2 years

(ii) Not less than 2 years but less than 5 years

(ii) 5 years or more

Nil

Rs.1000 per annum

Rs.2500 per annum

6. Medical Practitioners, including Medical Consultants (other than practitioners of Ayurvedic, Homeopathic and Unani Systems of medicines), Dentists, Radiologists, Pathologists and persons engaged in other similar professions or callings of a para-medical nature:-
(a) in the Bangalore Urban Agglomeration where standing in the profession is-

(i) Less than 2 years

(ii) 2 years or more but less than 5 years

(iii) 5 years or more

(b) in any other area in the State-

(i) Less than 2 years

(ii) 2 years or more but less than 5 years

(iv) 5 years or more but less than 10 years

(v) 10 years or more

Nil

Rs.1000 per annum

Rs.2500 per annum

Nil

Rs.1000 per annum Rs.1500 per annum Rs.2500 per annum

7. Engineers, RCC Consultants, Architects and Management Consultants-

(a) in the Bangalore Urban Agglomeration where standing in the profession is-

(i) Less than 2 years

(ii) 2 years or more but less than 5 years

(iii) 5 years or more

(b) in any other area in the State-

(i) Less than 2 years

(ii) 2 years or more but less than 10 years

(iii) 10 years or more

Nil

Rs.1000 per annum

Rs.2500 per annum

Nil

Rs.1000 per annum

Rs.1500 per annum

8. Members of Stock-Exchanges recognized under the Security Contracts (Regulation) Act, 1956 Rs.2500 per annum
9. Estate agents or brokers,

(i) in Bangalore Urban Agglomeration,

(ii) in any other area in the State

(a) Income tax payees

(b)Other than (a) above

Rs. 2500 per annum

Rs. 1500 per annum Rs. 1000 per annum

10. Contractors executing works contract as defined under the Karnataka Goods and Services Tax Act, 2017 where the total consideration in relation to the supply of goods or services or both in a year is Rs. 20 lakhs and above. Rs. 2500 per annum]
11. (i)Race horse owners and trainers licensed by the turf clubs.

(ii) Jockeys licensed by the turf clubs / race clubs-

(a) in case of Apprentice Jockeys

(b) other than (a) above

(iii) Bookmakers licensed by turf clubs

Rs. 2500 per annum

Rs. 1000 per annum Rs. 2500 per annum Rs. 2500 per annum

12. Self-employed persons in the motion picture industries as follows:

(a) Directors, Actors and Actresses (excluding Junior Artists), Playback Singers, recordists, editors

(i) Income tax payees

(ii) other than (i) above

(b) Cameramen and still photographers

Rs. 2500 per annum Rs. 1500 per annum Rs. 900 per annum

XX XX XX

Explanation I. – Notwithstanding anything in this Schedule, where a person is covered by more than one entry in the Schedule the highest rate of tax specified under any of those entries shall be applicable in his case.

Explanation II.- For purposes of determining the liability and the rate of tax in terms of Serial Number 15 in this Schedule, the higher number of workers and / or employees and / or employees at any time during the year shall be reckoned as the basis.

Explanation III.- For the purposes of Serial No. 16 of this Schedule where the oil pump or service station is held on lease by a lessee, such lessee shall be deemed to be the person liable under the Act.

Explanation IV.- No tax shall be levied under this Act on any firm except when it is engaged in any profession, trade or calling specified in Serial Numbers 2 (a) (iii), 3 (a) (iv), 5 (iii), 6 (a) (iii), 6 (b) (iv), 7 (a) (iii), 8, 8 (i), 10(iv), 11 (i), 11 (ii) (b), 11 (iii), 13 (d), 15 (iv), 16, 17, 18 (ii), 19 (i), (b), 21, 22, 27(b), 29 (a), 29 (b) (i), 31, 32(b), 34, 37, 40, 41(a), 42, 43, 44, 45, 46(d), 47, 49(b),51(a),52,53,54,55,56,60,61,62, 64,66,69(i),70(i),71(i),72(i) and 73 of the Schedule.

Explanation V. – No tax shall be levied under this Act on any partner of a firm, which is engaged in any profession, trade or calling specified in Explanation IV above.

XX XX XX

Author Bio

I am a qualified chartered accountant. Founder and managing partner of NRSR&Co, Manipal. Expertise in Direct Tax, Indirect Tax, Project financing, Trust, Society, Banking & Co-operative society. Did my internship/articleship under Ramesh Rao & Associates. Also worked as associate with S View Full Profile

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