What is Professional Tax ?
Professional Tax is a direct tax levied by state governments in India on income earned by individuals through employment, trade, profession, or business. The tax is applicable to salaried individuals, freelancers, professionals such as doctors, lawyers, chartered accountants, and anyone engaged in economic activity.
While it is called "Professional Tax," it applies to all earning individuals and not just professionals. Employers are responsible for deducting this tax from their employees' salaries and remitting it to the state government. For self-employed individuals, it must be paid directly to the relevant authorities.
Applicability of Professional Tax
Who Pays It?
Salaried Employees: Deducted by employers from their salaries.
Self-employed Individuals: Pay it directly to the state government.
Who Is Exempt? Certain groups are exempt from paying Professional Tax, such as:
Parents of children with permanent disabilities or mental challenges.
Senior citizens (aged 65 or above, depending on state rules).
Members of the armed forces.
Individuals earning below the prescribed income threshold.
Professional Tax Rates
Professional Tax is a slab-based tax, and the amount varies across states. Most states impose a maximum annual Professional Tax of ₹2,500.
Example of Rates:
Monthly Income up to ₹10,000: No tax.
Monthly Income ₹10,001–₹20,000: ₹100 per month.
Monthly Income above ₹20,000: ₹200 per month (and ₹300 in February for a total annual cap of ₹2,500).
(Exact rates vary by state.)
State-Specific Legislation Professional Tax is governed by state-specific laws, such as:
Maharashtra: Maharashtra State Tax on Professions, Trades, Callings, and Employments Act, 1975.
Karnataka: Karnataka Tax on Professions, Trades, Callings, and Employments Act, 1976.
West Bengal: West Bengal State Tax on Professions, Trades, Callings, and Employments Act, 1979.
Each state defines its rates, exemptions, and procedures for registration and payment.
Role of Employers in Professional Tax
Employers must register with the state’s Professional Tax Department.
Deduct the applicable amount from employees’ salaries every month.
Deposit the deducted amount with the state government within the specified deadline.
File periodic Professional Tax returns.
Penalty for Non-Compliance Non-payment or delayed payment of Professional Tax can lead to:
Fines or penalties imposed by the state government.
Revocation of business licenses in extreme cases.
Benefits of Paying Professional Tax
Compliance: Demonstrates adherence to state laws, avoiding penalties.
Tax Deduction: Employers can claim Professional Tax as a business expense under the Income Tax Act.
Employee Satisfaction: Ensures employees comply with legal requirements without hassle.
In summary, professional tax is an essential obligation for both employees and employers, ensuring compliance with state taxation laws while contributing to local government revenue.