All You Need to Know About Professional Tax

What is a Professional Tax?

Professional tax is a direct tax levied by the state government. If you are a professional such as a lawyer, doctor, chartered accountant, etc. then this tax will be levied. It is deducted from the gross salary along with TDS, EPF, and any other deduction.

Professional Tax in India

Professional tax is a state-level tax levied by the state government on individuals and professionals based on the income of such profession, trade, and employment if the income exceeds the threshold limit. Article 276 of the constitution gives power to the state government to levy such tax. The maximum amount chargeable is ₹2500/- and beyond that professional tax cannot be charged. It is the source of revenue for the state government and operates as per the state law. It is collected and used for the maintenance and development of the state. 

Difference Between Professional Tax and TDS

Who Should Pay Professional Tax?

The following are the parties that need to pay professional tax in India:

1. Limited Liability partnership
2. Insurance agents
3. Companies and business Firms
4. Hindu Undivided Family
5. Lawyers and legal practitioners
6. Contractors
7. Architects
8. Chartered Accountant
9. Company Secretary
10. Surveyors
11. Tax Consultants
12. Doctors
13. Co-operative Societies and Associations.

What is the Professional Tax Limit?

The tax is levied as per the slab rate of the individual but the limit for professional tax in India is ₹2500/- beyond that no tax is chargeable. 

Why is it Different for Different People?

Professional tax is applicable as per the tax slab of the individual. Also, different states have different slabs and limits hence it is different for different people but the maximum amount cannot exceed ₹2500/-.

Professional Tax for Salaried Individuals

Professional tax on salaried individuals is calculated on gross monthly income as per their slab rate and slab of the state in which the individual is employed. 

For example, if a person is employed in Telangana then if their income is ₹25,000/- then tax per month will be ₹200/-. The amount of tax is derived as per the state slab rate. Employers deduct this amount from individual salaries.

Professional Tax for Self-employed Individuals

If a person is self-employed and employed with any organisation then they are liable to make professional payments on their own. It’s the individual’s responsibility to deposit the tax to the respective state government. All professionals such as a doctor, lawyers, Company Secretaries, Chartered accountants, and even freelance professionals come under this category if their state levies professional tax.

The individual has to visit the state’s professional tax website and download the relevant form based on their profession. Once you have a professional tax registration number, individuals can use the same for tax payments. Certain states also give rebates on lump sum payments.

Professional Tax for Companies

If you run a business in India, there are two professional tax responsibilities to consider. 

• Your company must pay a lump sum professional tax based on your employees’ earnings deductions. 
• As a business owner, you also need to pay professional tax based on your own income. 

You can handle these tax payments online or offline.

Online: If your business is in Maharashtra, register on the Maharashtra government tax website to get a registration certificate. Once registered and verified, you’ll receive an enrolment certificate. With these certificates, you can officially deduct professional tax from your employees and submit it to the Maharashtra state government.

Offline: Visit your nearest district sales tax office for guidance on your firm’s professional tax obligations and complete the necessary forms in person.

What Happens if You do not Pay Professional Tax?

Different states have different Professional tax Act and penalty amount is prescribed in the same. Once professional tax is applicable, violation of it can attract penalties and interest. 

Let’s take an example from the state of Telangana:

As per the Professional Tax Act 1987

• The penalty for non-payment of the tax is 25% but not more than 50% of the amount of tax due in addition to interest payable. 
• Also if anyone fails to comply with any provision of the Act or rules made can be punished with a fine of not less than ₹500 to a maximum of ₹5000. If the offense continues then the fine will be not less than ₹10,000/- to the maximum of ₹50,000/- per day until the offense continues.

How is Professional Tax Calculated on Salary?

Professional tax is calculated on the gross salary.

Income on which Professional tax will be levied =Cost to the company(CTC)-Employee Provident Fund (EPF)- Gratuity – Any other deduction.

Let’s take an example

CTC=60,000

Gratuity= 5000

EPF= 12000

Other deduction= 1000

Professional tax will be levied on income= 60,000-5000–12000-1000=42000/-

So based on an individual’s gross salary professional tax will be detected and the employer will deduct this tax.

In Which States is a Professional Tax Not Applicable?

Following are the states and union Territories that do not levy professional tax:

• States

1. Arunachal Pradesh
2. Himachal Pradesh
3. Uttar Pradesh
4. Rajasthan
5. Haryana
6. Uttrakhand
7. Goa

• Union Territories

1. Andaman and Nicobar Islands
2. Daman & Diu & Dadra & Nagar Haveli
3. Delhi
4. Chandigarh
5. Lakshadweep

Where Should You Show Professional Tax in Your ITR?

Section 16, of the Income-tax Act, 1961 provides a standard deduction on tax under the head ‘Salaries’ and covers professional tax deduction under the same. 

When is Professional Tax Deducted?

As per article 276(2) of the Indian Constitution state government can levy professional tax if you are a salaried individual mentioned under the article, or you are a professional or owner of a private limited or limited liability partnership company or partner in a partnership firm or a sole proprietor company. 

The tax is deducted as per the salary slab from your gross income every month subject to the maximum limit. 

The following people are exempted from the professional tax: 

1. Senior Citizen
2. People with disability
3. Parents to disabled
4. Parents of mentally challenged children.
5. Workers in the textile industry
6. Women as an agent under the Director of Small Savings or Mahila Pradhan Kshetriya Bachat Yojana.

Can Professional Tax be Paid Online?

Yes, professional tax can be paid online. To make it easy and convenient for the taxpayer, the state government has introduced online tax payment of professional tax. If your annual liability exceeds ₹50,000/- monthly online payments are mandatory. The last date of monthly payment is the last day of the following month. But if the annual liability is below ₹50,000/- then monthly payment is not mandatory. You can make the payment once a year at the end of March. 

You can visit the website of the state government for professional tax and easily make the payment.

Following are the steps for the same:

1. Visit the state government website and click e-payment
2. Choose the statutory order status, enter PAN/TAN and captcha
3. Now select the applicable options: 

• Professional Tax Registration Certificate (PTRC): Applicable for an employer or company
• Professional Tax Enrolment Certificate (PTEC): Applicable for sole proprietors, partnership firms or individuals.

4. Make the payment

Frequently Asked Questions (FAQ)