As a salaried professional, you might have noticed the term ‘professional tax’ in the payslip or Form 16 that is issued to you. So, what is a professional tax, and should you know about it? This article will attempt to give you a better understanding of professional tax meaning, why it is deducted and answer various queries you might have regarding it.
What Is Professional Tax, and Why Is It Collected?
The term ‘professional tax’ is one of those phrases whose meaning is not entirely conveyed. The name might suggest that it is the tax that is levied on professionals only, but this is not the case. It is the tax that is charged on every kind of profession, employment and trade. It is based on the income a person receives from their job or trade. It is levied on every individual who earns in this fashion, whether they work fulltime, part-time or are freelancers, whenever their income exceeds the threshold that is specified.
The article 246 of Constitution of India states that the right to make laws that are related to Union List, which also includes the taxes chargeable on various incomes, belongs exclusively to the Parliament. The state can make or amend laws that concern only the state or concurrent list. Professional tax, on the other hand, is a type of tax charged on the income of an individual that is collected by the state government. It is interesting to note that not every state in our country has chosen to charge the professional tax.
Rates of Professional Tax
Since professional tax rules are regulated and levied by the state government, the tax rates differ from state to state. Every state has a set of laws concerning the professional tax that is applicable for that state. What is standard across all states is that they all implement a slab system that is based on a person’s income to charge professional tax.
The article 267 of the constitution that gives the state government the power to levy the professional tax also imposes some regulations. The state government can charge a maximum amount of ₹2,500 as professional tax per person.
Let us look at the professional tax slabs that some states charge
Karnataka Professional tax slab rates
| Monthly salary or wage going up to ₹15,000 | NIL |
| Monthly salary or wage more than ₹15,000 | ₹200 per month |
Andhra Pradesh Professional tax slab rates
| Monthly salary or wage going up to ₹15,000 | NIL |
| Monthly salary or wage that falls between ₹15,001 – ₹20,000 | ₹150 per month |
| Monthly salary or wage more than ₹20,000 | ₹200 per month |
Who Collects the Professional Tax?
The Commercial Tax Department collects the professional tax. Each state collects the amount, which then ultimately reaches the municipality corporation fund.
The person responsible for the payment of professional tax
Who is liable to pay a professional tax? Any individual who earns an income in the form of a salary is liable to pay this tax. This also includes chartered accountants, lawyers, doctors, etc. Under the purview of this tax are also merchants, business owners and people with other occupations. The staff members employed by private companies are also required to pay the professional tax.
In the case of employees, the employer is the person who is responsible for the deduction and payment of professional tax to the government. This is regulated by the slabs provided by the legislation of the state in question. Employers who belong to corporations, partnership firms, or are sole proprietors are also people who carry out a trade or profession and are similarly liable to pay professional tax. They are also governed by the same rules and regulations of the state’s legislation.
The employer needs two different kinds of certificates to fulfil these two roles. He must register for a professional tax registration certificate to pay the tax for his profession or trade. He also needs to register for a professional tax enrolment certificate that authorises him to deduct the tax on behalf of his employees and make the payment. Other than these, each state may require a separate registration from individual offices.
Persons who maintain their own freelancing business and do not have any employees also have to register and are subject to the state’s monetary threshold. A professional tax is also liable for exemption in specific categories, as provided by some States. For example, in Karnataka, parents or guardians of any individual who is intellectually disabled or visually challenged are excused from paying Professional Tax.
Where is Professional Tax Applicable?
Professional tax is determined by state governments in India, so the amount varies across states. For instance, an employee in Gujarat may pay a different tax amount than someone in Maharashtra. Self-employed individuals, such as doctors, lawyers, and chartered accountants, must also pay this tax, managing their liabilities independently. Tax rates depend on income levels and the state of residence.
Who Levies Professional Tax?
While Article 276 of the Indian Constitution grants the Parliament authority over income tax legislation, professional tax is an exception. States have the power to impose this tax, but not all choose to exercise this authority. Below is a list distinguishing states where professional tax is applicable and where it is not:
States Where Professional Tax is Applicable:
- Gujarat
- Maharashtra
- West Bengal
- Karnataka
- Tamil Nadu
- Kerala
- Andhra Pradesh
- Telangana
States Where Professional Tax is Not Applicable:
- Jammu & Kashmir
- Uttarakhand
- Delhi
- Uttar Pradesh
- Haryana
- Punjab
- Rajasthan
- Himachal Pradesh
What Is the Procedure for the Payment of Professional Tax?
Online Payment Procedure
- Register on the Portal: Visit your state’s professional tax portal and register your business to obtain a professional tax registration number.
- Verification and Certificate: Submit required details; after verification, the system issues a registration certificate.
- Payment Options: Log in to the portal and pay using debit/credit cards or internet banking.
- Convenience: Online payments are time-saving, requiring no physical visits to tax offices.
- Confirmation: Ensure to download or save the payment receipt for future reference.
Offline Payment Procedure
- Visit Tax Office: Go to a nearby professional tax office in your state.
- Fill Relevant Form: Complete the professional tax form with all necessary details.
- Submit Payment: Pay the outstanding tax amount in cash, cheque, or demand draft.
- Receipt Collection: Collect the payment receipt as proof of tax clearance.
- Additional Steps: Ensure compliance with submission deadlines to avoid penalties.
What Happens if There Is a Violation in the Payment of Professional Tax?
Since the state collects the professional tax, the penalty depends on its legislation. But, in general, all states may charge a fine if an individual fails to register for professional tax payment when the law is applicable in their case. Penalties are also applicable in case an individual fails to make the payment within the due date, or does not file the return at the proper time.
In the case of Maharashtra, for instance, a penalty fine of ₹5 per day is imposed if a person does not register in time. If there is a delay in registration, the interest of 1.25% applies for every month. Delays in non-payment of professional tax attract a 10% penalty. In case there is a delay in the filing process, the penalty amount can range from ₹1000 to ₹2000.
FAQs
What is a professional tax in salary?
Professional tax is a type of direct tax that is deducted by the employer from your (employee’s) gross salary. Professional tax in India is levied at the state level, and the rates vary from state to state. The professional tax is calculated based on the rates specified for different income levels.
How is professional tax calculated?
The professional tax is deducted from your gross income along with TDS, EPF, and other deductions. It is levied and collected by the state government, and for each state, the slabs are different. However, the maximum tax limit is fixed at ₹2,500 per annum.
Are self-employed individuals also required to pay professional tax?
As per Clause 2 of Article 276 of the Indian Constitution, professional tax applies to all professionals, salaried, and traders of the particular state.
Can you claim professional tax?
Under Section 16(iii) of the Income Tax Act of 1961, taxpayers can claim the amount paid towards professional tax in their ITR. The deduction can be claimed in the year in which the tax is paid by the employee.
