In this blog post, Aditi Sampat, Advocate at Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, analyses the Maharashtra State Tax on Professions, Trades, Callings, and Employments Act, 1975.
Professional Tax – An Introduction
The State Government, in accordance with Article 246(3) of the Constitution of India, is entitled to make laws concerning the matters enumerated in list II of the 7th schedule to the Constitution.
Profession Tax is a tax which is levied by the state on the income earned by way of profession, trade calling or employment. This tax is levied based on slab rates depending on the income of the individual. The state government decides this slab rate; hence, it varies from state to state. Any amount paid as Profession Tax to the state government is allowed as a deduction under Section 16 of the Income Tax Act.
Every person who is liable to pay tax, either on his own or on behalf of employees should apply for profession tax registration in the prescribed form with the prescribed authority.
In the case of salary and wage earners, the profession tax is to be deducted by the employer from salary and wages, and the employer is liable to pay it to the state government. In the case of other classes of individuals, the tax is liable to be paid by the person himself.
The State of Maharashtra has enacted the Maharashtra State Tax on Professions, Trades, Callings, and Employment Act, 1975 which is to levy a tax on professions, trade, callings and employments under entry number 60 of State List under the Constitution of India. It is pertinent to note that Article 246 has to be read with Article 276 of the Constitution and any other law enacted by the State which could be for the State’s benefit or for the benefit of the local bodies of that State.
Primarily, the amount collected as Tax is used for raising resources needed for implementing the Employment Guarantee Scheme of the Government of Maharashtra and for the establishment of Employment Guarantee Fund.
The Profession Tax slab rate in Maharashtra on salary and wages are as follows:
Provisions of the Maharashtra State Tax on Professions, Trades, Callings and Employment Act, 1975
The Procedure for Registration and Enrolment under the Act –
Section 5 –Registration and Enrolment under the Act:
Registration –Every employer not being in the office of government is liable to pay tax under Sec 4 or 10 A(5) (Special Provisions regarding liability to pay tax in certain cases) shall obtain a certificate of Registration from the prescribed authority in a prescribed manner. The Act defines Employers as the person or officer who is responsible for paying salary or wages of the employee, including the head of the office of any establishment and that of the employer who has engaged actively of otherwise in any profession, trade, callings or employment in the State of Maharashtra. It includes an HUF, Firm, Company, Corporation or another corporate body, any society, club or association. Exclusions specifically are persons who earn wages on a casual basis. Form I has to be used for applying for Registration then the authority will issue Certificate of Registration in Form IA.
If an employer has more than one place of work, then, in that case, he shall make an application for Registration separately to each authority in respect of his place of work within the jurisdiction of that authority. A company which employs persons should get a certificate of registration. It is liable to pay profession tax as it is engaged in trade and it shall also get a certificate of enrolment. Every employer is required to obtain a Certificate of Registration within Thirty days of his becoming liable to pay tax.
Enrolment –Every person who is liable to pay tax under this Act, other than a person earning salary of wages in respect of the tax is payable by his employer, shall obtain the certificate of enrolment from the prescribed authority in a prescribed manner. An Indian Citizen employed in any diplomatic office, consular office or trade commissioner of any foreign country situated in any part of the state, shall be liable to pay the tax himself. In the case of foreign citizens employed in these offices are not liable to pay profession tax. If a person has more than one place of work within the State of Maharashtra, then he shall make a single application only in respect of all places of work.
Section 3 – Levy and Charge of Tax:
The provisions of Article 276 of the Constitution of India and this act states that the tax collected on professions, trades, callings and employments for the benefit of the state. The section further emphasizes that the amount of Tax shall not exceed Rupees Two thousand Five hundred per annum.
Critical Analysis of the Maharashtra State Tax on Professions, Trades, Callings, and Employments Act, 1975
The amount of Professional Tax collected by Government of Maharashtra has been in far excess to the amount allocated to the National Rural Employment Guarantee Scheme and the Employment Guarantee Scheme. A sizeable amount of the Tax has been swallowed by the politicians and bureaucrats, leaving the poor high and dry.
The explanation given by the Government of Maharashtra is the demand deficit for work. However, the real reason is the lethargic, insensitive machinery which is beyond the reach of the poor.
The vast amounts of Professional Tax collected by the Government of Maharashtra are channeled elsewhere instead of funding the Employment Guarantee Scheme.
Supposedly the State Government, under the Maharashtra State Tax on Professions, Trades, Callings, and Employments Act, 1975 attempted to build a corpus for the Employment Guarantee Fund in an escrow-like account to insulate it from a risk of the paucity of funds in distress years. However, an existence of such a fund is far from reality. The existence of the fund would have led to a corpus of thousands of crores of rupees and collections have been higher than the expected EGS outgoing bar in a few years.
In the year 2006, the official statistics mentioned that Rs7,900 crore were unspent over the year as of March 2005, that is, the year when NREGS came to being. NREGS took the pressure off Maharashtra Government to the extent of 100 days of jobs on demand, which implied that while it continued to collect levies and taxes for EGS, it was spending much less than it otherwise would have.
Patently, a profligate government constantly working with deficit budgets, due to the virtual non-existence of the EGS is quietly pocketed by the bureaucrats and the politicians, no questions asked in or outside the legislature.
The well-conceived scheme of Jobs-on-demand laid down by VS Page in the 1970s has been consistently misused with absolutely no accountability of the amounts collected as Professional Tax.
A Public Interest Litigation in the Bombay High Court had been filed in 2011 wherein the State Government admitted that for a few years the government had not even contributed to the fund as prescribed and told the Bombay High Court that the amount of Rs 3,144 crore owed on this account till 2011 could be made good only in 10 instalments, in spite of the budget deficits.
Until the present, there have not been any amendments in the EGS Act which prohibits the taxes and levies under false pretexts, and thereby legitimizing the absence of the EGS Fund.
The EGS Act prohibits any diversion of funds, however, it only allows some of it to be lent on occasion, but for not more than two years after which it has to be recovered. Spending the amount loaned under the EGS Act for unjustified purposes amounts to illegal diversion. If such vast sums were no longer required, the honest thing would have been to repeal the Act or some of its provisions, but no one in the political or bureaucratic circles has even considered it.
In conclusion, it can be said that there is the substantial amount which has been collected under the head of Professional Tax whose accountability is a question which remains unanswered.
Sources:
- http://www.caclubindia.com/articles/profession-tax-act-1975-maharashtra-9333.asp.
- http://www.aiftponline.org/journal/aiftpjournal%20july%202013/opinion_Vinayak%20Patkar%20Advocate.htm
- http://yourstory.com/2015/08/profession-tax/
- dnaindia.com/analysis/column-where-does-the-money-spent-by-maharashtra-on-nregs-go-1614162
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