Professional Tax

Introduction

Professional tax is a term commonly encountered by salaried individuals in India, often reflected on their payslips or Form 16. This tax is deducted from their salary by their employer, but many are unclear about why it is levied. Here, we’ll dive into what professional tax is, the applicable tax slabs, and how to pay it.

What is Professional Tax?

Professionals tax is a tax levied by state governments in India on individuals earning an income through employment, profession, or trade. This tax is deducted by the employer from an employee’s salary and is then remitted to the state government. The tax amount is usually mentioned in the individual’s salary slip as “P tax.”

Not only salaried individuals but also professionals like doctors, lawyers, and chartered accountants are required to pay this tax directly to the state government. These individuals can also claim a tax deduction for the professional tax paid during the financial year under the Income Tax Act of 1961.

Where is Professional Tax Applicable?

The professionals tax is a state-specific tax, meaning the rate and applicability differ from state to state in India. For example, the professional tax rate in Gujarat may differ from that in Maharashtra.

Self-employed professionals, such as chartered accountants, doctors, lawyers, and others, are also liable to pay professionals tax. In such cases, these professionals must handle their tax payments themselves. The tax rate applied depends on the individual’s income and the state in which they practice.

Professional Tax Limits

Initially introduced in 1949 with a limit of Rs. 250, the professional tax limit was increased to Rs. 2,500 in 1988. The exact tax liability depends on the employee’s income slab and the state of employment, but it cannot exceed Rs. 2,500 per month regardless of these factors.

You may also want to know Section 194N

Who Levies Professional Tax?

Article 276 of the Indian Constitution allows the state governments to levy professionals tax. However, not all states in India choose to impose this tax. The following table highlights where professionals tax is applicable and where it is not:

The Commercial Tax Department of each state is responsible for collecting professionals tax. Employers usually deduct this tax from employees’ salaries and remit it to the government on their behalf. Self-employed individuals, however, must pay it directly to the state government.

How to Pay Professional Tax: Payment Procedure

The Professions, Trades, Callings, and Employments Act of 2000 mandates that self-employed individuals, who are not affiliated with a third-party organization or firm, must pay professionals tax. For this, they need to register for a professional tax registration number.

Once registered, individuals can pay their professional tax online or offline. Offline payment requires visiting a tax office, filling out the necessary forms, and submitting them with the due tax amount. For online payments, individuals can register on the state’s professionals tax portal and pay using debit/credit cards or internet banking.

Paying professional tax online is convenient and saves time as it eliminates the need to physically visit tax offices.

Penalty for Non-Payment of Professional Tax

Failure to pay professionals tax on time can result in penalties. The penalty varies from state to state, but all states impose fines for late payments. Additionally, businesses that do not obtain the necessary professional tax registration and enrollment certificates on time may face penalties.

Incorrect information provided to the government can also lead to penalties. According to Section 5(6) of the Profession Tax Act, misinformation on registration or enrollment certificates can increase the professionals tax burden by up to three times.

Paying Professional Tax in Advance

Businesses and individuals can opt to pay professionals tax in advance. Doing so can be advantageous, as some states offer discounts and rebates for advance payments. However, to prepay professionals taxes, it is essential to be well-acquainted with the tax slabs of the state where the business or employment is located.

Maharashtra Professional Tax Slabs

West Bengal Professional Tax Slabs

Tamil Nadu Professional Tax Slabs

Andhra Pradesh Professionals Tax Slab

Karnataka Professionals Tax Slabs

Conclusion

Professional tax is an essential obligation for salaried individuals and self-employed professionals in many states of India. Understanding the tax slabs, knowing where it is applicable, and being aware of the payment procedures and penalties for non-compliance can help you stay on the right side of the law. By paying professionals tax on time, you can also avoid any penalties or legal complications.