What Is Professional Tax?

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  • 11 Mar 2023

States like Maharashtra levy a professional tax of Rs 2,500 annually from people earning Rs 1.2 lakh per year and above, other states like Haryana do not have any such taxation policy.

No state is allowed to levy a professional tax of more than Rs 2,500 per annum. Senior citizens, disabled persons, members of the forces, and parents or guardians of mentally or permanently disabled children are also exempted from paying professional tax.

Professional Tax was introduced in 1949 and state governments were given the authority to collect it. At the time of its introduction, the maximum annual limit of this tax was capped at Rs 250. However, by 1988, this limit had increased to Rs 2,500 per individual. Three decades on, the limit hasn’t changed.

States are free to levy a rate they deem fit for the citizens in their jurisdiction. Like income tax, there are slabs even in professional tax, and these differ between states. The one thing common across states is the maximum limit of Rs. 2500.

Profession tax is usually collected in 11 equal deductions (for example, of Rs 200 each) and one larger deduction (of say Rs 300 in February) for the year.

Some states and union territories do not levy a professional tax at all.

Also state governments have different rules for different sets of people. For example, a factory owner in one state may be liable to pay professional tax only if his annual turnover crosses a certain mark, which may not be the case in another state. In some states, the owner of a transport business may have to pay professional tax based on the vehicles he owns; in others the tax may be based on his income.

Business owners or individuals who employ others are liable to deduct professional tax from their employees’ salaries and pay it to the respective state government. Failure to deduct professional tax or pay it to the government attracts penalties. If you are self-employed, you are responsible for paying profession tax for yourself.

As a self-employed person, you can register with your local state government to pay profession tax by filling up a form. The government will issue you a registration number. You can use this number to pay profession tax through your bank if it is authorised to collect it.

You must get an RC or registration certificate to pay professional tax within 30 days of hiring employees in your company. If your business operates across states, then you must register in all the states where you are liable to pay professional tax. Registration is a one-time process and many states offer the facility of online registration and payment.

In every state the commercial tax department is responsible for collecting profession tax from employers. If you are an employer, you can pay the tax through a challan at the nearest bank that collects it.

If your company has a staff-strength greater than 20, then you must make payment of profession tax within 15 days after a month ends. If you employ fewer than 20 people, then you must deposit the tax every quarter, by the 15th of the last month of the quarter.

If you do not get a registration certificate within 30 days, you will have to pay a penalty of Rs 5 per day till you get the RC. If you do not deposit the profession tax in time, you will be liable to pay 10% of the tax amount as penalty.

Besides paying the tax, you must also file professional tax returns. If you fail to do so in time, you will have to cough up a penalty of Rs 1,000 for one month of delay. Post one month of delay, the penalty increases to Rs 2,000.

Does the thought of income tax play on your mind at the end of every fiscal year? Knowing the income tax slabs can certainly help you get rid of the worries. It will give you a clear idea of how much money would be deducted from your salary and where you can save. In this way, you can determine the take-home salary and choose how to enjoy tax benefits.

Here is an overview of the existing tax slabs so that you can make your plans in advance.

Taxpayers in India are classified into different groups based on their respective incomes. Each group has to pay income tax based on the slab they come under. There is a designated rate of tax deduction, which is usually revised every year. Before we proceed to the rates prescribed by the government, it is important to have a clear idea of the categories of tax-payers:

  • Individuals and Hindu Individual Family (HUF) (<60 years)

  • Senior citizens (>= 60 years, but <80 years)

  • Senior citizens (>= 80 years)

  • Domestic companies

Read more: Right time to start tax planning

Following these categories, the income tax slabs in India for the year 2019–20 are given below:

Annual Income Rate of Tax Charged Health and Education Cess
Up to Rs. 2.5 lakh
Nil
Nil
Rs 250,001–Rs 5 lakh
5%
4% of the income tax and surcharge
Rs. 500,001–Rs 10 lakh
20%
4% of the income tax and surcharge
More than Rs 10 lakh
30%
4% of the income tax and surcharge
Annual Income Rate of Tax Charged Health and Education Cess
Up to Rs 3 lakh
Nil
Nil
Rs 300,001–Rs 5 lakh
5%
4% of the income tax and surcharge
Rs. 500,001–Rs 10 lakh
20%
4% of the income tax and surcharge
More than Rs 10 lakh
30%
4% of the income tax and surcharge
Annual Income Rate of Tax Charged Health and Education Cess
Up to Rs 5 lakh
Nil
Nil
Rs 500,001–Rs 10 lakh
20%
4% of the income tax and surcharge
More than Rs 10 lakh
30%
4% of the income tax and surcharge

These rates are valid for FY 2019–20 and FY 2020-21.

When paying income tax for FY 2020–21, taxpayers can also opt for a new taxation regime with lower tax rates. However, under the new regime, the taxpayer cannot claim any tax exemptions and deductions. Take a look at the special tax rates here:

Annual Income (Rs) Rate of Tax Charged
Up to Rs 2,50,000
Nil
Rs 2,50,001–Rs 5,00,000
5%
Rs 5,00,001–Rs 7,50,000
10%
Rs 7,50,001–Rs 10,00,000
15%
Rs 10,00,001–Rs 12,50,000
20%
Rs 12,50,001–Rs 15,00,000
25%
Above Rs 15,00,000
30%

If your annual income is above Rs 50 lakh, a additional surcharge is levied on your income. The rate of surcharge varies based on the income range, but the slabs are the same for all age groups. The current surcharge rates are given below:

Annual Income Rate of Surcharge Extent of Relief
Rs 50 lakh–Rs 1 crore
10%
Payable income tax and surcharge will not exceed the income tax on Rs 50 lakh by more than the amount of income exceeding Rs 50 lakh.
Rs 1 crore–Rs 2 crore
15%
Payable income tax and surcharge will not exceed the income tax on Rs 1 crore by more than the amount of income exceeding Rs 1 crore.
Rs 2 crore–Rs 5 crore
25%
Payable income tax and surcharge will not exceed the income tax on Rs 2 crore by more than the amount of income exceeding Rs 2 crore.
Rs 5 crore–Rs 10 crore Above Rs 10 crore
37%
Payable income tax and surcharge will not exceed the income tax on Rs 1 crore by more than the amount of income exceeding Rs 1 crore.

The government no longer differentiates between men and women as far as payment of tax is concerned. So, before you plan your investment in order to avail tax exemptions, it is important to know the income tax slab you fall under.

Read more: Tax-saving investment options

25%

NA

30%

Company Turnover Rate of Tax Charged in AY 2020–21 |moile_haeder Rate of Tax Charged in AY 2021–22
Company where total turnover during previous year (FY 2017–18) was less than Rs 400 crore
25%
NA
Company where total turnover during previous year (FY 2018–19) was less than Rs 400 crore
NA
25%
Any other domestic company
30%
30%/p>
  • Rate of Surcharge

  • Taxable income more than Rs 1 crore but less than Rs 10 crore: Surcharge of 7% will apply on the income tax payable. However, the total of income tax and surcharge will not exceed the income tax on Rs 1 crore by more than the amount of income exceeding Rs 1 crore.

  • Taxable income more than Rs 10 crore: Surcharge of 12% will apply on the income tax payable. But the sum of income tax and surcharge will not exceed the income tax on Rs 10 crore by more than the amount of income exceeding Rs 10 crore.

  • 4% Health and education cess: This will be levied on the total of income tax and surcharge.

Domestic companies can also opt for special tax rates under the new regime in AY 2020–21:

Section Chosen for Income Tax Purposes Rate of Tax Charged in AY 2020–21 Rate of Tax Charged in AY 2021–22
Section 115BA
25%
25%
Section 115BAA
22%
22%
Section 115BAB
15%
15%/p>

Who would not want to save as much as possible from their taxes? The Government of India offers provisions to do the same. Section 80C lists a number of tax-saving investments:

  • Public Provident Fund (PPF)

  • National Pension Scheme (NPS)

  • Equity-Linked Savings Schemes (ELSS)

  • Fixed Deposits

  • Life Insurance

  • Health Insurance

These are just a few of the tools that allow you to avail tax exemption (refer to Section 80C).

Read more: Investments under Section 80C

Investing in equity-linked savings schemes (ELSS) is considered to be the most profitable. These funds enjoy the shortest lock-in period but generate better income than PFF or NPS. The interest that your FD earns is not tax-free, but your income from ELSS is exempted from tax. (More on the benefits of ELSS)

All you need to do is set aside a little time from your busy schedule. Use this time to assess the pros and cons of each of these instruments. Then choose the ones that best suit your requirements.

Summing Up

A thorough understanding of the income tax slabs prescribed by the Indian government would help you plan your investment and savings. This is how you balance your income and expenditure.

Read more: Reasons to file ITR

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