What is professional tax? Professional tax applicability, professional tax slabs, penalties for late payment

Do you know what Professional Tax is? Your salary slip may be a Professional Tax deduction every month. Here’s why.

Professional Tax: Everything you must know about it

The next time you receive your payslip, take a minute to study the break-up of the deductions; you may come across the head ‘Professional Tax’. Don’t confuse it with Income Tax, for it is not – the two taxes are not interchangeable.

However, it may so happen that your salary slip does not mention Professional Tax; this is because not all Indian states impose it. Those which do impose the tax are Andhra Pradesh, Assam, Bihar, Gujarat, Karnataka, Kerala, Madhya Pradesh, Meghalaya, Orissa, Sikkim, Tamil Nadu, Telangana, Tripura, West Bengal, Maharashtra, Jharkhand, Manipur, Mizoram, Puducherry and Chhattisgarh.

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So what is Professional Tax?

Professional Tax is a state tax, imposed by a state government on account of the infrastructure it provides to you so that you can carry out your profession in that state. In a way, it is much like a toll bridge; if you use the facility, you must pay a token amount.

Levied under Article 276(2) of the Indian Constitution, Professional Tax is deducted by the employer from the salaries of employees every month and remitted to the state; the maximum amount that can be levied annually under this head is Rs 2,500.

As per the relevant article, the tax “shall be levied and collected on professions, trades, callings and employments, in accordance with the provisions of this Act. Every person engaged in any profession, trade, calling or employment and falling under one or the other of the classes mentioned in the second column of the Schedule shall be liable to pay to the State Government tax at the rate mentioned against the class of such persons in the third column of the said Schedule. Provided that entry 23 in the Schedule shall apply only to such classes of persons as may be specified by the State Government by notification from time to time.”

There are two things that you need to keep in mind about Professional Tax: 

  • First, it is compulsory
  • Second, Professional Tax deduction is exempt from income tax. This means that the amount can be shown as a deduction from your salary income in your income-tax returns.

Related: Top 6 Most Common Mistakes to avoid when filing IT returns

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How is Professional Tax calculated?

The way to calculating tax would differ from each state to another. Every state follows a method unique to their regulations and arrives at a rate that helps calculate the tax payment.

The professional tax is charged on the basis of income slabs levied by the government. The state follows regulations put in place by the government abiding by the Tax under Clause (2) of Article 276.

The minimum slab rate begins at Rs. 110 per annum, whereas the maximum amount of tax that can be imposed by the state stands at Rs. 2,500 per annum.

Follow these steps to calculate professional tax:

Step 1: Figure out if the professional tax is imposed in the state you’re residing in.

Step 2: If applicable, calculate the tax amount based on your monthly income.

Step 3: Identify the tax slab rate applicable on your salary.

Does Professional Tax have slabs?

As explained earlier, Professional Tax is a revenue source for the state government – just like any other tax. Similarly, like other taxes, it too has slabs, and all paid employees of an organisation and independent professionals fall under its various categories.

Professional Tax calculation is based on predetermined slabs and on the basis of the salary or monthly income levels. It is usually around Rs 200 a month, with the maximum payable in a year being Rs 2,500. This amount is deducted from your salary by your employer, who is responsible for depositing it with the relevant government office – the municipality, the local district board, or any other legislative agency in the state for the professions, trades, callings and employments carried out in that particular state.

All types of companies come under the purview of Professional Tax, from Private Limited companies to one-person companies, partners of Limited Liability Partnerships to partnership firms, and even sole proprietors. It is advisable for all such entities to apply for Profession Tax registration immediately upon incorporation.

Any employer with a ‘Certificate of Registration’ can be penalised by the government if this tax is not paid.

Related: How advance tax can help you stay on track with tax payments

What about non-salaried people?

It is not as if only those working in an organisation on a regular salary are liable to pay Professional Tax. Even if you do not work in a company or have an employer, but still earn an income, the responsibility of paying Professional Tax is yours.

According to the Professions, Trades, Callings and Employment Act 2000, all professionals enjoying a monthly income above a certain level are liable for Professional Tax payment. (‘Professionals’ refer to people are in a specialised field, such as medicine (doctors), accountancy (CAs), media (independent journalists), Information Technology etc.

Freelance professionals also must register for paying Professional Tax by applying on a special form, following which the applicant will be given a registration number. Professional Tax can be paid under these registration numbers at banks.

Since the rate of Professional Tax varies from state to state in India, you must be aware of the prevailing rate in your particular state, especially if you are an independent professional. It is also advisable to consult a Chartered Accountant or tax consultant before paying anything under this head as the tax slabs can vary from year to year.

Incidentally, some states also provide tax rebates if Professional Tax is paid in a lump sum for a few years together. This also makes it important for you to be aware of this condition and other rules surrounding professional tax registration in your state.

Related: Property tax: When does it apply to you? [Infographic]

Professional Tax applicability

As stated, there are rules that govern professional tax; some of these include:

  • There are two types of Profession Tax certificates that a company needs: the Professional Tax Registration Certificate (PTRC) is required for its role as an employer, and the Professional Tax Enrolment Certificate (PTEC), so that the company can deduct Professional Tax on salaries of a certain amount
  • The ‘Certificate of Enrolment’ has to be obtained within 30 days from the date of becoming eligible to pay Professional Tax
  • Employers with a ‘Certificate of Enrolment’ can be penalised if they do not deposit the Professional Tax of their employees
  • A separate application needs to be submitted for every office a company has, as per the requirement of the particular state where the place of work is situated
  • Foreign employees in such companies are not liable to pay Professional Tax
  • However, the rules applicable for professionals become applicable for Indians employed by any foreign diplomatic office, embassy or consulate, as these offices need not get a Certificate of Registration.

Related: Everything you need to know about the GST return forms

Penalties for Default

There are a few penalties in place for breaching the rules surrounding Professional Tax, including a penalty of 2% per month for a delay in making the payment. Its non-payment invites a 10% additional penalty.

Moreover, even a delay in obtaining ‘Certificate of Enrolment’ is penalised – this is at the rate of Rs. 2 per day. If the information provided at the time of enrolment is found to be incorrect or false, the penalty is three times the tax amount due.

Some states slap a penalty of Rs. 300 for every late filing of returns.

Related: Difference between Tax Exemption, Tax Deduction and Tax Rebate [Infographic]

Related: Components of your salary and their tax benefits [Infographic]

Last Words

As is the case with all types of taxes, the rules governing Professional Tax can vary over time, and it is advisable to check the current rules from a tax consultant before paying Professional Tax. One can also register for Professional Tax payment online


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