What is Professional Tax?

If you read your salary slip carefully, you will find, among all the deductions, a small one for professional tax. Professional tax is levied by a state government on people who earn a living through their profession, whatever that may be. The funds raised through the tax is used by the government to implement development and welfare schemes across the state.

As for the taxpayer, the amount paid as professional tax is allowed as a deduction under Section 16 of the Income Tax Act.

Origin of Professional Tax in India

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.

Profession tax rates across states: Why do they vary?

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) to make it Rs. 2500 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.

Who Collects Professional Tax in India?

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 self-employed, 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 authorized to collect it.

How to register for and pay profession tax?

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 that 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 15^th 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. 1000 for one month of delay. Post one month of delay, the penalty increases to Rs. 2000.

Professional Tax Slabs in the States

Different states levy different rates of professional taxes depending on income slabs. Here are a few of them:

Professional Tax Maharashtra

Professional Tax Karnataka

Professional Tax West Bengal

Professional Tax Madhya Pradesh

Professional Tax Tamil Nadu

Professional Tax Andhra Pradesh

Professional Tax Gujarat

Professional Tax Odisha

Besides those mentioned above, the other states that do levy profession tax include: Chhattisgarh, Assam, Kerala, Meghalaya, Jharkhand, Tripura, Bihar, Manipur, Mizoram, Pondicherry, Rajasthan, Telangana, Himachal, Sikkim, Nagaland and J&K levy the tax.

States like Delhi, Uttar Pradesh, Haryana, Andaman and Nicobar, Goa and Uttaranchal are some of those who don’t levy profession tax.