Treatment of professional Tax to non-salaried individuals

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 March 2010 Respected Members,
In our organisation a retired senior Officer from a PSU Bank (referred to as Mr. X) has been appointed on contract basis for a period of six months. As per the appointment letter issued, Mr. X is paid monthly compensation (as distinct from salary). Mr. X is also not eligible for other benefits which are normally available to an Employee.
HR department has been deducting Professional Tax from the compensation paid to the said officer.
Upon noticing the same, the said Mr. X has now represented that since he is not an employee, he is not liable to pay PT from the contracutal compensation paid to him. He has also stated that in terms of section 16(iii) of IT Act, any sum paid by an EMPLOYEE ON ACCOUNT OF TAX ON EMPLOYMENT (PROFESSION TAX), IS ALLOWABLE AS DEDUCTION.
Kindly guide what treatment should be given to the represetnation. Whether HR department is right in deducting PT or whether Mr. X has made a rightful contention.

Tks.

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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29 March 2010 Your HR department is correct. Since the definition of employee is wider. If a person is regularly seriving the institution where the periodicity is common then he becomes an employee for the purpose of pf esi bonus and pt act.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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29 March 2010 My view is different.for employer -emplyee relationship. there should be a employment agreement.but in this case he is purely not a employer -employee relation .please read the words author is mentined .the particular person not eligible for other emplyees benefit so it is purely retainership contract base so PT is not applicable for him

CA.ViVeK M ACA

CA.ViVeK M ACA (Expert)
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30 March 2010 Dear Ramesh,

I hope srinivas is correct ,

Fact of the case

The retired staff had appointed for rendering professional service on contract basis..

Conclusion

There is a contract of service and not the contract for service...
This is also an important criteria..In the said case , the retired stafff is acting according to the direction etc of the management

secondly, the compensation paid is liable for professional tax even if he there is an employer and employee relationship

The deduction u/s 16 (iii) may be a differnt issue.. example honorarium paid to the MD..

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