Professional Tax – Obligations, Exemptions, State-Wise Rates

If you are a salaried employee, you must be aware of professional tax. These taxes are mentioned in the salary slips and Form 16 issued to professionals along with HRA, conveyance, etc. If you wonder about these taxes and the professional tax rates state-wise, this article will help you. Learn about professional tax, who should pay, exemptions, procedures, state-wise rates, deductions, and violations.

Content

• What is Professional Tax?
• Who Levies Professional Tax?
• Professional Tax Applicability
• Who Collect And Pays The Professional Tax?
• Individuals Responsible For Paying Professional Tax
• Exemptions
• Procedure For Paying Professional Tax
• Profession Tax Rates in Indian States in 2022-2023
• Professional Tax Deduction
• Consequences of Professional Tax Regulation Violation

What is Professional Tax?

Professional Tax is a type of Tax that the respective state governments in India levy on all individuals who make money through different professions, trades, and employment. Every individual who is earning is obligated to pay professional Tax. The calculation and amount collected may differ from one state to another, but it has a limit of Rs. 2500 per year.

Must Read – What is Finance?

Who Levies Professional Tax?

Professional tax in India is levied by the State Governments. Article 246 of the Constitution of India allocates legislative powers between the Parliament and the State Legislatures. Professional tax falls under the State List (List II) purview as per the Seventh Schedule of the Indian Constitution.

Professional Tax Applicability

Professional Tax applies to the below individuals and entities:

• Companies and firms
• Limited liability partnerships (LLPs) 
• Corporation
• Societies
• Architects
• Associations
• Chartered Accountants
• Clubs
• Company Secretaries
• Contractors
• Engineers
• Insurance agents
• Legal practitioners  
• Management consultants
• Medical practitioners such as doctors, dentists, physiotherapists, etc.
• Surveyors
• Tax consultants

Who Collect And Pays The Professional Tax?

The State Commercial Tax Department collects the professional tax, eventually reaching the municipality corporation fund.

Individuals Responsible For Pay Professional Tax

• Employers are responsible to deduct and pay professional tax to the State Government for their employees, subject to the monetary threshold. 
• An employer (corporates, partnership firms, sole proprietorship, etc.), also being a person carrying on trade/profession, is also required to pay professional tax on his trade/profession again subject to the monetary threshold, if any, provided by respective State’s legislation. 
• In such a case, the employer must register and obtain a professional tax registration certificate to pay professional tax on his trade/profession and a professional tax enrolment certificate to deduct the tax from his employees and pay. Further, each office may require separate registration depending on the respective State’s legislation.
• Persons carrying on freelancing businesses without any employees must register themselves subject to the monetary threshold as per the state legislation. 
• A professional tax levy may be subject to the exemption as per the respective state to specific categories. For example, parents or guardians of blind or someone suffering from mental retardation from the levy of Karnataka Professional tax.

Procedure For Paying Professional Tax

This is, again, a State-specific query. However, a professional tax can be paid either online/offline. Further, professional tax returns must also be filed at specified intervals depending on the State’s requirement.

Exemptions: 

• Persons suffering from permanent physical disabilities (including blindness).
• Parents or guardians of someone suffering from mental retardation.
• Individuals running an educational institute
• A foreign national employed by the relevant state
• Any individual above 65 years
• Women serving as staff under the Government’s Mahila Pradhan Kshetriya Bachat Yojana
• Persons 65 years and above (60 years in the case of Karnataka).

Profession Tax Rates in Indian States in 2022-2023

Andhra Pradesh

Bihar

Goa 

Gujarat 

Karnataka

Kerala

Check out the top finance interview questions

Maharashtra

Madhya Pradesh

Odisha

Tamil Nadu

Telangana

*For professionals like CS, legal practitioners, CA, architects, etc.

West Bengal

Professional Tax Deduction

Under Section 16 of the Income Tax Act of 1961, individuals can claim a deduction for the professional tax paid during the financial year. This deduction is available to both salaried individuals and self-employed professionals.
The professional tax paid can be claimed as a deduction from the income while calculating the taxable income. It is essential to keep records of the professional tax paid, such as receipts or certificates, as proof when filing your income tax return.

Consequences of Professional Tax Regulation Violation 

There is a state-regulated penalty in case of failing to register and file professional tax in time.

For example: In Maharashtra, the penalty for late registration is Rs 5/day. The defaulters will have to pay –

• An interest of 1.25%/month in case of late payment
• A 10% penalty on the tax amount for non-payment/delay of professional tax
• A penalty of Rs. 1000 – 2000 for late return filing

Top Trending Finance Articles:

Financial Analyst Interview Questions | Accounting Interview Questions | IFRS Certification | CPA Exams | What is Inflation | What is NFT | Common Finance Terms | 50-30-20 Budget Rule | Concept of Compounding | Credit Cards Rewards System | Smart Budgeting Approaches