- Date : 20/07/2020
- Read: 6 mins
Have questions about how to register for professional tax? Here’s everything you need to know
Professional tax is a state government tax levied on professionals and members of certain trades.
- This tax is charged by and paid to the state government under Article 276(2) of the constitution.
- It is a tax that is levied on salary and wage earners.
- It is a tax levied on the salary or wage earned by a person by way of employment or profession.
- The states regulate professional tax via certain acts that are specific to each state.
- All states do not levy professional tax. The states that levy professional tax are Maharashtra, Gujarat, Tamil Nadu, Telangana, Karnataka, Kerala, Punjab, Bihar, Jharkhand, West Bengal, Andhra Pradesh, Assam, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. To get detailed information on state-wise slabs and professional tax applicability, click here.
Why does my employer deduct professional tax from my salary?
Employers in the specific states where professional tax is applicable are required to deduct professional tax from the salary paid to their employees. This is carried out when the salary exceeds the specified amount. The amount deducted is mentioned as a profession tax deduction.
The amount of professional tax paid is based on the pre-set slabs of salary. The current maximum amount that may be deducted as professional tax from the salary of an employee is Rs. 250 per month or Rs. 2,500 per year. This maximum is fixed regardless of the amount being received as salary. Most states levy anywhere between Rs 100 Rs 200 on a monthly basis, except for the state of Kerala that charges professional tax on a half-yearly basis. This maximum amount is fixed Rs Rs 2500 regardless of the amount being received as salary.
The reason that the professional tax amount is deducted at the beginning on the salary slip, is that this amount is not liable to Income Tax. The deduction is made before calculating the TDS and Income Tax on salary.
What is the eligibility for professional tax registration?
In case of salaried individuals, the applicability is based on the employer. If the employer is paying salary or wages to an employee that exceeds the specified slab amount, then they have to deduct professional tax and deposit it with the state government. Every employer must check:
- If the professional tax levied is by the state.
- If yes, do they exceed the base amount being paid as salary?
- If yes, then they must obtain professional tax registration and professional tax enrollment certificates.
- The liability for compliance with professional tax is on the employer in this case.
For example, in Maharashtra, the minimum amount paid as monthly salary on which professional tax becomes applicable in the year 2020-21 is Rs. 7,500. So if an employer has one or more employees who are being paid a salary of Rs. 7,500 or more, then the employer must deduct the professional tax amount from the salary as per the slab applicable. This should then be paid to the state government in compliance with the specific rules laid down. In Maharashtra, the slab for payment of professional tax is:
- For salaries ranging between Rs. 7,501 – Rs. 10,000, the professional tax deduction amount would be Rs. 175 for men and nil for women employees.
- For salaries higher than Rs. 10,000, the professional tax amount deducted would be Rs. 200 for all months, except February when it is Rs. 300 (irrespective of the gender).
What are the documents required for professional tax registration?
In the case of self-employed individuals, the onus of compliance and payment of professional tax is on the individual himself. Self-employed person could any entrepreneur or professional such as chartered accountant, lawyer, doctor, company secretary, estate agents, etc. Any person earning a monthly income over a certain limit, regardless of whether they are self-employed or freelancers will be covered under the purview of professional tax.
Individuals will have to submit copy of PAN, Aadhaar, personal ID proof, proof of business address, passport size photo, attendance register of employees and salary register, and an authorization letter from the Professional Tax Department.
How does one register under professional tax?
The registration process varies from state to state, and there are specific rules laid down for the same. In most states, including Maharashtra, the professional tax registration must be done, and the certificate of enrolment must be obtained within 30 days of becoming eligible for payment of professional tax.
One can register for professional tax payments in the following way:
- Online or by using Form No.1.
- After Form 1 has been submitted and acknowledgement is given.
- The proprietor or director of the company is required to sign on the application and submit it to the concerned professional tax registration office.
- When the registering authority receives the signed application, they issue Form I-A along with TIN, which is the registration number under the Professional Tax Act for the applicant.
Should I consult a professional consultant for professional tax compliance?
It is advisable to consult a professional for professional tax compliance. The rules vary from state to state as well as year to year. Some penalties will be levied in case of noncompliance or mistakes and delays. Some of the fines and penalties include late filing of professional tax return, which will attract a penalty of Rs.1,000. A penalty of 10% will apply in case of late payment of professional tax dues. Penalty for not obtaining registration on time and interest on late payment can be levied up to 1.25% per month on a simple interest basis.
Your consultant will also be able to guide you regarding the composition schemes, where you can pay in advance and receive a reduction in the amount and do away with the hassle of filing for a few years. They would also be able to guide you regarding exemptions from the scheme in case you or any of your employees are eligible. Take a look at everything you must know about professional tax to understand the taxation process more comprehensively.