Profession tax and local levies in Kochi

It is a local body tax, and it is bigger than you think

Article 276(2) of the Constitution caps what any state or local authority may charge one person on a profession, trade, calling or employment at ₹2,500 a year. In Kerala the levy is not made by the state at all. It is made by the local body — under section 245 of the Kerala Municipality Act, 1994 inside a Corporation or municipality, and under section 204 of the Kerala Panchayat Raj Act, 1994 in a village panchayat. Section 245 opens with a condition people skip past: the tax applies where the Council by a resolution determines that a profession tax shall be levied.

It is not a marginal levy. The Comptroller and Auditor General's performance audit in the Audit Report on Local Self Government Institutions in Kerala for the year ended March 2022 put profession tax at ₹1,131.25 crore across the five years from 2017-18 to 2021-22 — 32.02 per cent of the tax revenue of the state's urban local bodies, second only to property tax at 66.40 per cent.

That figure explains the behaviour you will meet. A tax funding a third of a municipality's tax revenue is a tax the Secretary's office chases. And because the Act makes the employer the assessing officer rather than the taxpayer, the chase lands on your desk rather than on your staff's.

Which local body, and the sixty-day rule

Section 245 sets two separate tests and either can catch you.

A company is liable where it transacts business in the municipal area for not less than sixty days in the aggregate in any half-year, or where it transacts business outside the area but has its head office, or the place from which its business is controlled, inside the area for not less than sixty days.

A person is liable where, in a half-year, they exercise a profession, art or calling, transact business or hold any appointment, public or private, within the area for sixty days in the aggregate; or do so outside the area but reside inside it for sixty days; or transact business outside the area with a head office or place of control inside it for sixty days; or reside inside it for sixty days and receive income from investments.

Section 251 defines transacting business very widely — soliciting, obtaining or transmitting orders, buying, making, manufacturing, exporting, importing, receiving or otherwise dealing in goods, isolated acts included — and says that where a company has an office, an agent or a firm to represent it in the area, it is deemed to transact business there whether or not that office can make binding contracts. Section 247 makes that servant or agent liable for tax on the principal's business.

Two protections follow. Section 245(3) says a company or person who proves the sum was already paid for the same half-year to another local authority in the State pays only the difference. Section 245(4) says someone who resides in one local body's area and works in another is not liable for more than the higher of the two amounts, and the Government apportions it between them.

What counts as income, and why HRA does not

Section 245(2) says a person is chargeable under the class appropriate to his aggregate income from all the sources specified in the section. A salaried employee with rental income in the same municipal area is assessed on the total, not on salary alone.

Then the Explanation to section 245, which almost nobody applies correctly. For the purpose of this section, aggregate income shall not include local allowance or allowances for house rent, carriage hire or travelling expenses.

House rent allowance is out. Conveyance and travelling allowances are out. On a Kochi salary structure with a substantial HRA component, that can move an employee down a slab, and assessing on gross cost to company overcharges them by an amount they will never notice and never get back. It cuts the other way for employers who load everything into basic pay.

The halves run April to September and October to March. The Act's profession tax sections do not spell that out, but the Government order revising the slabs does: it gave the new rates effect from 1 October 2024, describing that date as the start of the second half-year of 2024. The remittance points are what actually bite — before the end of August, and before the end of February.

Notice what that does to the first half. Tax for April to September falls due before the end of August, a month before the period has finished, so you are assessing on a projected six months. The Act says nothing about how to handle a pay change afterwards and we could not find published guidance. Ask the Secretary's office rather than guessing.

The slabs, and the date they changed

The ceiling is constitutional, which is why the top Kerala slab has not moved. The profession tax portal run by the Directorate of Urban Affairs says as much on its own FAQ page: states were given the power under clause (2) of Article 276, and the maximum any state may levy is capped at ₹2,500. Half of that is ₹1,250, and that is where the top half-yearly slab sits.

The lower slabs did move. G.O.(Rt) No. 1149/2024/LSGD dated 27 June 2024, issued on recommendation 2.118 of the Sixth State Finance Commission's second report, revised the profession tax slabs in village panchayats and municipalities with effect from 1 October 2024. The order prints the old and new half-yearly figures side by side:

• Up to ₹11,999: nil, unchanged
• ₹12,000 to ₹17,999: ₹320, previously ₹120
• ₹18,000 to ₹29,999: ₹450, previously ₹180
• ₹30,000 to ₹44,999: ₹600, previously ₹300
• ₹45,000 to ₹99,999: ₹750, replacing a band that had carried ₹450, ₹600 or ₹750
• ₹1,00,000 to ₹1,24,999: ₹1,000, unchanged
• ₹1,25,000 and above: ₹1,250, unchanged

The order operates through the Kerala Municipality Act, 1994 and the Kerala Municipality (Profession Tax) Rules, 2005 for municipalities, and the Kerala Panchayat Raj Act, 1994 and its 1996 Profession Tax Rules for panchayats. The amount the Secretary demands is still the one that binds you. The point to act on is the date: payroll configured before October 2024 is deducting ₹120 where it should now deduct ₹320.

You do the assessing, not the Corporation

This is the part that startles employers arriving from a state with a professional tax department.

Section 252 of the Kerala Municipality Act binds every head of office, employer, manager, proprietor or person in the administrative control of any office, company, firm, undertaking, establishment or institution where persons are employed for salaries or wages to recover the profession tax due at the rate fixed by the Municipality and pay it over.

Section 253 has the Secretary, during April every year, requiring every such employer to furnish the names and addresses of the offices or institutions under his control. Section 254 has the Secretary, in May and November of every half-year, requiring every head of office or employer to assess every employee liable to the tax — and then, before the end of August and February, the employer shall assess every employee liable, recover the amount, and pay it over together with a list of everyone assessed giving name, designation, half-yearly income and tax recovered, plus a certificate that all employees liable to tax have been included.

Section 255 requires the Secretary to receipt the payment in the head of office's name, and requires you in turn to give each employee a certificate of the recovery and payment. Section 258 requires a certificate on the February and August salary bill that the tax has been paid, and says that without it the passing officer shall not honour the bill.

Section 259 supplies the sanction and states no amount: on default, the Secretary shall immediately prosecute.

Paying it: the portal, and the gap underneath it

If your office is in an urban local body there is a portal. professiontax.lsgkerala.gov.in, run by the Director of Urban Affairs at Swaraj Bhavan, Nanthancode, Thiruvananthapuram, takes online profession tax payment for six corporations and eighty-six municipalities. Cochin Corporation is one of the six. Check the municipality list against this district and every one of Ernakulam's thirteen is on it: Aluva, Angamaly, Eloor, Kalamassery, Koothattukulam, Kothamangalam, Maradu, Muvattupuzha, North Paravur, Perumbavoor, Piravom, Thrikkakara and Tripunithura.

The employer flow is a bulk one. You register the organisation, upload existing employee and salary details as a single structured CSV from the template on the portal, and the system calculates the total and takes you to payment by debit card, credit card or net banking. Employees can be added or deleted afterwards. The portal asks for a scanned copy of your last paid receipt to show there are no arrears, and it supports payment from the first half of 2019-20 onwards.

Now the gap. Gram panchayats are not on that list. The last order we could find on the subject is G.O.(Rt) No. 2016/2024/LSGD dated 22 October 2024, which records that the profession tax module for the K-SMART application was delayed, and permits local self government institutions to use the profession tax module on KSIDC's K-SWIFT portal until it is ready. Whether K-SMART has since taken over, we could not confirm. If your unit is at Kizhakkambalam, Chottanikkara or Puthencruz, ring the panchayat office in June and ask which route they want — not in the last week of August.

The trade licence, and the sign board that is not taxable

Two more things the local body wants, and they get confused with each other constantly.

The trade licence. Section 447 of the Kerala Municipality Act lets a Municipality notify that no place in its area shall be used for specified purposes, or for any other trade, without a licence. Where the licence is for a dangerous or offensive trade the Council decides within thirty days of the application; for a common trade the Secretary decides within fifteen. A licence expires, unless a date is specified in it, three years from the date of issue, and every application for a licence or renewal must be made not less than thirty and not more than ninety days before it is needed or before the existing one expires. What triggers all this is the notified purpose, so check the notification rather than assuming: a restaurant, bakery, laundry or workshop is squarely inside it in a way an ordinary consulting office generally is not.

Advertisement tax. Section 271 taxes every advertisement erected, exhibited, fixed or retained upon or over any land, building, wall, hoarding or structure in the municipal area. But a proviso exempts an advertisement which is not a sky sign and which relates to the trade or business carried on within the land or building on which it is exhibited. Your own name board on your own premises is generally outside the tax. Written permission from the Secretary under section 272 is still required, and section 272(3) says that where the advertisement is liable to tax, no fee is charged for the permission itself.

Shops and Establishments registration is a different department

Registration under the Kerala Shops and Commercial Establishments Act, 1960 has nothing to do with the local body — it is the Labour Department — although the local body's licence is one of the documents the Labour Department asks for, which is why the two get muddled.

The department's published service list says all shops and commercial establishments except those registered under the Factories Act have to be registered, and that what you bring is a copy of the licence from the local body, the lease agreement, a list of employees and the employer's identity proof. The designated officer is an Assistant Labour Officer (Grade II) and the listed time limit is one day.

The fees, from the Labour Commissionerate's own tables, are identical for registration and for renewal and are set by headcount:

• No workers: ₹55
• Up to 5 workers: ₹105
• Above 5 and up to 10: ₹210
• Above 10 and up to 20: ₹420
• Above 20 and up to 30: ₹630
• Above 30 and up to 50: ₹1,050
• Above 50 and up to 100: ₹2,100
• Above 100: ₹4,200

Renewal runs from November each year, and against the renewal service the department lists its time limit simply as "auto renewal". That phrase does a lot of work, and we would not rely on it in silence: check that the certificate on your wall shows the current year before an inspector does.

The two welfare funds with nearly the same name

Kerala has two welfare funds whose names are almost identical, and employers routinely pay into the wrong one, or neither. Both are listed side by side on the Labour Commissionerate's own welfare fund boards page.

The Kerala Labour Welfare Fund, under the Kerala Labour Welfare Fund Act, 1975. Section 15 as amended sets the contribution at four rupees per half-year from every employee and eight rupees per half-year from the employer in respect of each such employee, payable by the employer before the 15th of July and the 15th of January each year, with the employee's share recoverable by deduction from wages. The amounts are trivial. The scope is not: section 2(f)(iv) brings within the Act any commercial establishment or shop within the meaning of the Kerala Shops and Commercial Establishments Act, 1960 employing two or more persons, which is most Kochi offices. The board is on 0471 2463769 or 0471 2463772.

Separately there is the Kerala Shops and Commercial Establishments Workers Welfare Fund Board, operating under its own 2006 Act with a scheme dating from 2007. On the Board's own site the contribution is ₹50 a month from each member and ₹50 a month from the employer for each worker, with a self-employed member paying both — ₹100. The employer remits the combined amount, and may pay six months or a year in advance. Membership opens to workers within the 1960 Act aged 18 to under 55, on completing three months' service. The Board is on 0471 2572507 or 0471 2572758.

What is not a local levy

It is worth being clear about what the local body has nothing to do with, because a lot of Kochi compliance advice bundles the whole lot together.

Provident fund and employees' state insurance are central schemes run by EPFO and ESIC, with their own thresholds and their own district offices. Numbers may have been allotted when your company was incorporated; that is not the same as being liable, and it is certainly not the same as being compliant. Settle your position with the EPFO regional office at Kochi and the ESI sub-regional office at Ernakulam rather than with a payroll vendor's defaults. We have deliberately not printed a headcount threshold for ESI coverage of shops and establishments in Kerala, because that threshold comes from a state notification and we could not confirm the current one.

Tax deducted at source on salaries, and GST, belong to the Income Tax Department and the GST authorities. Neither is a municipal matter, and neither is affected by what you pay the Corporation.

One piece of good news running the other way. The profession tax portal's own FAQ records what most employees do not know: the total profession tax paid during the year is allowed as a deduction under the Income Tax Act. You are already required by section 255 to give each employee a certificate of recovery. Tell them what it is for.