Karnataka Professional Tax Amendment 2023: Major Changes Notified

Background

The Government of Karnataka notified the Karnataka Tax on Professions, Trades, Callings and Employments (Amendment) Act, 2023 (New Amendment) in the Official Gazette on 14 March 2023, pursuant to the Governor’s assent to the same on 13 March 2023. The New Amendment amends the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 (Karnataka Professional Tax Act), and the same will be effective from 1 April 2023. In this update, we discuss the key changes brought about by the New Amendment from an employment law perspective.

Substitution of schedule detailing tax payable for various classes of persons

The New Amendment ushers in a new schedule (New Schedule) replacing the old schedule detailing the rates of tax on various classes of persons. The New Schedule is relatively concise as it has 12 entries in comparison to 74 entries in the old schedule of the Karnataka Professional Tax Act. Some of the significant entries in the New Schedule are as follows:

The explanations to the New Schedule in the New Amendment provide that when a person is covered by multiple entries in the New Schedule, instead of paying the applicable highest rate of tax specified under the entries, the person can pay tax under any one of the entries. Further, if any asset or business is held on lease by a lessee, such lessee shall be deemed to be the person liable under the Karnataka Professional Act.

Other amendments

In addition to the above amendments to the Karnataka Professional Tax Act, other changes as set out below have been brought about in the Karnataka Professional Tax Act:

Comment

The New Amendment can be seen as an attempt by the Government of Karnataka to make the Karnataka Professional Tax Act more robust in terms of the statutory framework by leaving limited discretion with the authorities in terms of determining the applicable penalty in case of default or assessing the existence or absence of reasonable cause in such cases. The increase of the threshold salary limit as regards coverage of salaried employees would also benefit employees. However, to an extent, the definition of ‘assessment’ remains unclear on the implementation front. While the definition covers self-assessment, there appears to be no mechanism introduced in the statute to allow employers to self-assess and verify the amount of professional tax deposited, which would have enabled ease of compliance. It is anticipated that the state government would receive requests for clarification from employers in this regard.

-     Anshul Prakash (Partner), Deeksha Malik (Senior Associate) and Ajeta Anand (Associate)

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