Many salaried employees might be very well aware of the term ‘professional tax’ as it would have been mentioned in the payslips/Form 16 issued to them. But all of them may or may not understand what it is and why it is appearing in their payslips/Form 16 as a deduction from their salary income. Hence, this article is an attempt to provide a better picture of what and why professional tax is deducted and whether the salaried class people are only bearing it. 

What is a Professional Tax ?

When you're employed and receive a consistent salary, fulfilling your professional tax obligations becomes mandatory. You have likely encountered this term on your monthly salary slips or Form 16, listed beneath your gross salary, allowances, and HRA. Professional tax is one of the deductions from your gross salary, alongside TDS, EPF, and other applicable deductions. Contrary to common misconception, this tax isn't exclusively for professionals like doctors or lawyers; it applies to anyone earning a salary. Let's delve into the intricacies of professional tax to gain a better understanding.

As per Article 246 of the Constitution of India, only the Parliament has the exclusive power to make laws with respect to the Union List, which includes taxes on income. The state has the power to make laws only with respect to the Concurrent and state list.

However, professional tax though is a kind of tax on income levied by the state government (not all states in the country choose to levy professional tax). The state government is also empowered to make laws with respect to professional tax though being a tax on income under Article 276 of the Constitution of India, which deals with tax on professions, trades, callings and employment.

It may be noted that professional tax is a deductible amount for the purpose of the Income-tax Act  1961 and can be deducted from taxable income.

Professional Tax Rate :

Professional tax being impose a tax by the state government is different in different states. Every state has its own laws and regulations to govern the professional tax of that particular state. However, all states follow a slab system based on income to levy professional tax.

Further, Article 276 of the Constitution, which empowers the state government to levy professional tax, also has provided for a maximum cap of Rs.2,500, beyond which professional tax cannot be charged to any person. 

Who is Responsible to Collect Professional Tax ?

Professional tax is collected by the Commercial Tax Department. The commercial tax department of the respective states collects it which ultimately reaches the fund of the municipal corporation.

Who is Responsible to Pay Professional Taxes ?

Professional tax is not limited to specific professions; it applies to various individuals and entities. The following categories of persons and entities are subject to professional tax:

• Companies and Business Firms
• Limited Liability Partnerships (LLPs)
• Corporations
• Co-operative Societies and Associations
• Hindu Undivided Families
• Clubs
• Lawyers and Legal Practitioners
• Contractors
• Architects
• Engineers
• Insurance Agents
• Chartered Accountants (CAs)
• Company Secretaries (CS)
• Surveyors
• Tax Consultants
• Management Consultants
• Doctors and Other Medical Representatives

Understanding Professional Tax Rates in India :-

Professional tax rates in India vary from state to state, as each state government has the authority to enact its own laws and regulations governing this tax within its jurisdiction. Despite these regional variations, a commonality among states is adopting a slab system that determines the professional tax liability based on an individual's income.

 Professional Tax Slab   Professional Tax is a state-specific tax in India, meaning the tax rates and slabs can differ from one state to another. Some states levy professional tax as a percentage of income, while others use a fixed amount based on income slabs to determine the tax liability.

How to Pay Professional Tax ? Is Any Return to be Filed ?

Professional tax is a direct tax levied by the state government.  As a result, the form of payment may differ from one state to the next.

Professional tax, on the other hand, can be paid both online and offline. To pay professional tax, you must go to the official website of the relevant state.

It is important to note that if you are a salaried individual, then such professional tax will be collected and remitted by your employer.

Exemptions in Professional Tax :-

Even though everyone who earns a regular income (salary) is expected to pay the professional tax, some people are exempt. As a result, if you fall into one of the categories listed below, you are exempt from paying professional tax.

• Member of Force (Governed by Army, Air Force, Navy Act)
• An individual suffering from mental or physical disability. Disability can be blindness, deafness, etc.
• Parent of a child suffering from a disability
• Charitable hospitals are present in places that come below the taluk level
• Badli workers (temporary workers that are employed in a factory)
• Individuals running an educational institute in respect of their branches teaching classes upto 12th standard or pre-university.
• A foreign individual who has been employed by the relevant state
• Any individual above 65 years
• Women who are solely engaged as agents under the Government’s Mahila Pradhan Kshetriya Bachat Yojana

Consequences of Violating Professional Tax Regulations :-

• The consequences for violating professional tax regulations can vary depending on the state's legislation. However, there are common penalties and consequences associated with non-compliance:

• Late Registration: A penalty may be imposed if you fail to register for professional tax once it becomes applicable to you. The specific penalty amount can vary by state.
• Late Payment: Failing to make professional tax payments within the due date can lead to penalties. The penalty may be calculated based on a daily or monthly rate and can vary by state.
• Non-Payment or Delay: You may be penalized if you do not pay the professional tax or experience delays in payment. Sometimes, the penalty is a percentage of the tax amount owed.
• Late Return Filing: Many states require filing professional tax returns within specified due dates. Failure to file the return on time can result in penalties. The penalty amount may vary by state

As an example, in Maharashtra, the penalties are as follows:

• Late registration: Rs 5 per day.
• Late payment: 1.25% monthly interest on the overdue amount.
• Non-payment/delay of professional tax: A penalty of 10% on the tax amount.
• Late return submission: Penalties ranging from Rs. 1,000 to Rs. 2,000.

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