Professional Tax in India

Professional Tax in India | Procedure, Consequences, Collecting and Paying Professional Tax

Professional Tax in India: Many salaried employees are going to be very well aware of the term ‘professional tax’ as it is going to have been mentioned in their payslips/Form 16 that has been issued to them. However, all of them may or may not understand what it is and why it appears in their payslips/Form 16 as a deduction from the income salary. Hence, this article attempts to provide a better picture of ‘Professional tax’ and why it is being deducted, and it is only the salaried class who are bearing it.

What is the Professional Tax, and Who is Imposed With this Tax?

The terminology ‘Professional tax’ could be one of those terms which do not entirely convey the actual meaning of the word. Unlike suggested by the name, it is just not the tax imposed only on the professionals. It is a tax imposed on all kinds of professions, businesses, and employment and assessed based on the income of such job, trade and jobs.

It is imposed on employees, a person carrying on the business, including professionals, freelancers etc., subject to their income exceeding the monetary threshold, if any.

Professional Tax is a state-level tax that has been levied by State Governments. It is applied to the individuals making a living by way of salary income or practising any profession such as CA, lawyer, doctor, architect, CS, engineer etc.

Currently, this tax is applicable in Andhra Pradesh, Jharkhand, Assam, Bihar, Sikkim, Goa, Gujarat, Karnataka, Orissa, Meghalaya, Kerala, Madhya Pradesh, Maharashtra, Telangana, Tripura, Tamil Nadu, & West Bengal. The amount of professional tax is different in different states. However, it has an upper limit of Rs. 2500 per year per individual.

According to the Indian Constitution’s Article 246, only Parliament has the exclusive power of making laws with respect to the Union List, which includes taxes on income. The state has the ability to make laws only concerning the Concurrent and State list.

However, professional tax is a kind of tax on income levied by the State Government (not all states in the country chose to charge professional tax). The Government of the states is also empowered of making laws with respect to the professional tax even though being a tax on income under Article 276 of the Constitution of India, which deals with tax on professions, jobs, callings and employments.

It might be noted that professional tax is a deductible amount for the purpose of the Income-tax Act of the year 1961 and can be deducted from the taxable income.

Professional Rate of Tax

Professional tax is going to be imposed by the State Government is going to be different in different states. Each state has its laws and regulations to govern the professional tax of that specific state. However, all the states are following a slab system based on the income to impose a professional tax.

Further in the Article 276 of the Constitution, which empowers the State Government to impose a professional tax, has offered a maximum cap of Rs 2,500 beyond which the professional tax is going to be charged on any person.

Few illustrative Slabs in the Country

Professional tax rate slabs in Karnataka

Monthly salary up to Rs 15,000 NIL
Monthly salary > Rs 15,000 Rs 200 each month

Professional tax rate slabs in Andhra Pradesh

Monthly salary up to Rs 15,000 NIL
Monthly salary between Rs 15,001 – Rs 20,000 Rs 150 each month
Monthly salary > Rs 20,000 Rs 200 each month

Who is Responsible for Collecting and Paying Professional Tax?

The Commercial Tax Department collects professional tax. The commercial tax department of the respective states manages it, which ultimately reaches the fund of the municipal corporation.

Persons Responsible for Paying Professional Tax

  • In the case of the employees, an employer is liable to deduct and pay the professional tax to the State Government subject to the monetary threshold, if any provided by the respective legislation of the State.
  • An employer (partnership firms, corporates, sole proprietorship etc.) also being an individual carrying on a profession/trade is also needed for paying professional tax on their profession/trade again subjected to the monetary threshold in case any is offered by the respective State’s legislation. In this scenario, the employer has to register and obtain both a professional tax registration certificate to be able to pay the professional tax on their profession/trade and a professional tax enrolment certificate to be able to deduct the tax from the employees and pay. Further, the separate registration might be needed for each office depending on the respective State’s legislation.
  • Persons who carry on freelancing business without any employees are also needed to register themselves subject to their monetary threshold, if any, needed by the respective State’s legislation.

However, a professional tax imposed is subjected to the exemption provided by the respective State to the specific categories. For example, parents or guardians of any individual suffering from mental retardation, blind persons are exempted, among others, from the imposed by Karnataka Professional tax.

What is the Procedure for Paying Professional Tax? Is any Return Needed to be Filed?

This is again a State-specified query. However, generally, a professional tax might be paid either offline/online. Further, depending on the requirement of the state, professional tax returns are also needed to be filed at specified intervals.

Consequences of Violation of Professional Tax Regulation

While the actual penalty or penal interest might be depending on the respective State’s legislation, a penalty might be imposed by all these states for not registering once when the professional tax legislation is applicable.

Further, also there are penalties for not making the payments within the specified due date and failing to file the return within the mentioned date.

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