Professional tax: Most frequently asked questions

Professional tax – What is it? Why is it levied? And what are the questions that are most frequently asked by people concerning professional tax all over India?

Professional tax: Most frequently asked questions

Professional tax is a tax imposed by the state government on every person who is earning a salary or income through a profession or trade. It is state-imposed and hence is variable from state to state. In fact, not all states levy this tax. 

Due to the variability, compliance can be confusing. There are a lot of questions that are asked frequently by businessmen and employees alike. Let’s have a look at and find the answers to the most commonly asked questions on professional tax.

Is it mandatory to pay professional tax?

Professional tax is a mandatory tax and there are penalties and fines in case of noncompliance. The penalties and fines in professional tax are levied for reasons like delay in registration, payment etc.

How is professional tax calculated? 

Professional tax is calculated based on salary slabs. There is a minimum salary under which there is no professional tax. The maximum amount of professional tax that can be levied on a person is Rs. 2500 per year. Different states have different salary slab structures for levying professional tax.

How much professional tax is deducted from salary?

Professional tax is deductible from income prior to calculation of income tax, and hence appears at the top of the salary slip. It is deducted from the salary of the employee and deposited to the state government by the employer. 

Related: Professional Tax: Everything you must know about it 

Does professional tax differ from state to state and if yes, why is this? Is professional tax applicable in union territories?

The professional tax rules vary greatly from state to state. Since professional tax is a levy that is determined by the state, each state has the power to set limits and rates as it sees fit. The only thing constant is that the levy of professional tax cannot exceed the amount of Rs.2,500 per year. Currently, 20 states and territories levy professional tax. 

Here are some examples of the professional tax slab rates in 2018-19 and how they vary from state to state 

Professional tax: Most frequently asked questions

It is important to know that these rates can be and are often revised by the respective State Governments. 

Union territories like states can choose to levy professional tax. Only the union territory of Pondicherry levies professional tax. 

Related: Components of your salary and their tax benefits 

Are there any exemptions from professional tax?

There are some categories who are exempted from paying professional tax. These exemptions also vary from state to state. 

Who is responsible for registering themselves and paying professional tax?

In the case of salaried employees who are liable to pay professional tax, the duty lies on the employer to get registered and deduct the professional tax from his employee’s salary and deposit the same into the state government’s account. 

In the case of a self-employed individual who is covered under professional tax, it is his or her responsibility to get registered and pay professional tax in a correct and timely manner. Are you aware of these 6 income sources that do not attract tax? 

 

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