Updated : January 30, 2024Applicability of PTEC for Company’s Directors in Karnataka
Overview : The article discusses the applicability of the Professional Tax Enrollment Certificate (PTEC) for directors of companies registered in Karnataka. As per a notification, directors of companies registered in Karnataka and those nominated by state-owned financing agencies are exempt from professional tax. The exemption applies even if the company's registered office is not located in the state of Karnataka under the Companies Act or if the company is incorporated in Karnataka under the Companies Act. However, Directors, Actors, and Actresses (Excluding Junior Artists) must pay professional tax and fall under serial number 4 in the prescribed schedule.
As per NOTIFICATION-2 (02/2023)FD 09 CPT 2023 dated 13/07/2023, directors of companies registered in Karnataka and those nominated by state-owned financing agencies are exempt from professional tax. This interpretation is backed further by the Main Class list of persons requiring enrollment as per the professional tax enrollment portal, which excludes directors of companies registered in Karnataka. This exemption notification provides relief to all companies registered in Karnataka without specifying any particular act. This implies that the exemption applies to all directors associated with companies operating within the state of Karnataka, regardless of their registration under various state acts, such as the Karnataka Goods and Services Tax Act, 2017, the Karnataka Shops and Commercial Establishments Act, 1961, or any other state act.
This interpretation holds true even if the company’s registered office is not located in the state of Karnataka under the Companies Act or if the company is incorporated in Karnataka under the Companies Act. The exemption applies explicitly to directors of companies registered in Karnataka as per the PT filing portal: https://pt.kar.nic.in/Profile. However, directors, actors, and actresses (excluding junior artists) are required to pay professional taxes and fall under serial number 4 in the prescribed schedule (DPAL 06 SHASANA 2023). A snapshot of the PT filing portal depicting the same is reproduced here under:
Our interpretation of point no 9 of NOTIFICATION-2 bearing notification no (02/2023)FD 09 CPT 2023 dated 13/07/2023, with respect to the exemption of directors of the company from the preview of professional tax, is as follows: Directors of Companies registered in Karnataka, as well as individuals nominated as directors by financing agencies owned or controlled by the State Government or other statutory bodies, are exempt from the purview of professional tax.
This interpretation is derived from the list of Class of Persons – Main Class available in the drop-down menu on the professional tax enrollment portal. The portal indicates that directors, actors, actresses, playback singers, recordists, and editors (excluding junior artists) are eligible for enrollment. The drop-down does not provide for directors of companies registered in Karnataka as a class of persons entitled to enrollment. It’s worth noting that the PT enrollment portal lacks a specific category for directors, placing them under the generic class of “others.” This might need clarification but aligns with the overarching exemption notification (02/2023) FD 09 CPT 2023 dated 13/07/2023, which explicitly exempts Directors of Companies registered in Karnataka from professional tax.
Therefore, it can be inferred that the exemption applies specifically to directors of a company registered in Karnataka, as intended by the PT filing portal: https://pt.kar.nic.in/Profile. Furthermore, Directors, Actors and Actresses (Excluding Junior Artists) are required to pay the professional tax and are categorised under serial number 4 in the schedule prescribed by section 3(2) vide notification no DPAL 06 SHASANA 2023, BENGALURU, DATED: 14.03.2023.
An additional layer of complexity is introduced by a new provision outlined in the PT schedule at serial number 12, effective from the 1st day of April 2023. It mandates a professional tax of Rs 2500 for individuals engaged in any profession, trade, calling, or employment with a minimum of two years of standing unless specifically exempted by State Government notifications. We have a view that the director could not come under this category due to the following.
- Company Tax Responsibility : Directors may not fall under the professional tax category individually, as the responsibility to pay professional tax is typically placed on the company itself.
- Partner Exemption within the PT Schedule : Commencing from April 1, 2023, the explanation in the PT Schedule explicitly declares that partners in a firm engaged in any profession, trade, or calling are exempt from individual tax liability if the firm discharges the corresponding tax obligation. This provision potentially extends the exemption to directors who hold a partnership role within a firm.
The legislative intent is to refrain from collecting professional tax from directors serving as key managerial personnel in a company, primarily if they are not classified as employees. In cases where a director is an employee of the company, falling under the category of a salaried individual, they do not need to seek professional tax enrollment. As the employer, the company is responsible for obtaining a Professional Tax Registration Certificate (PTRC) and collecting a monthly tax of Rs 200 from the director if their salary aligns with the prescribed schedule. This streamlined approach ensures compliance and clarifies the taxation framework for directors who are also employees within the corporate structure.
- Exemption Notification : The specific exemption outlined in the notification (02/2023)FD 09 CPT 2023 dated 13/07/2023 is crucial. Directors of Companies registered in Karnataka are expressly exempted from professional tax, reinforcing the notion that individual directors may not be subject to this tax.
- Portal Classification : The professional tax enrollment portal needs a distinct category for directors, potentially indicating that they are not intended to be individually enrolled. The available category of “others” may serve as a catch-all for cases not covered explicitly.
- Focus on Company Registration : The exemption is closely tied to companies registered in Karnataka, emphasising the collective responsibility of the company rather than individual directors. This aligns with the broader taxation approach.
Conclusion
In summary, the combination of company tax responsibilities, firm partner exemptions, explicit exemption notifications, and the absence of a separate director category in the enrollment portal suggests that directors, especially those associated with registered companies in Karnataka, may not be individually liable for professional tax. It emphasises the importance of understanding the interplay between corporate and individual tax obligations for directors. This clarification aims to comprehensively understand the exempted class and the corresponding schedule classification for directors seeking enrollment under professional tax regulations.
