What is Professional Tax?

Last Updated: 29 Jun 2022

Professional tax is a popular term, especially among salaried individuals. The payslips and Form 16 issued to salaried individuals mention the deduction of this tax. However, not everyone may know or understand what professional tax is and why it’s getting deducted from their income. This article answers the most basic question What is professional tax?

Professional Tax: Meaning

The meaning of professional tax is rather straightforward – it is a direct tax levied by state governments, in India. The name may confuse people to believe that it is a tax on professionals such as doctors or lawyers. Professional tax is levied on all kinds of professions, trades, and employment. It is calculated based on the income generated from such professions, trade, or employment, subject to a certain monetary threshold concerning income.

Professional tax is essentially levied by state governments. Some states in the country may choose not to levy professional tax. The state governments are empowered to formulate laws concerning this particular tax despite it falling under Article 276 of the Constitution of India. Since it is a tax levied by the state government, it differs for every state.

Generally, a slab rate is declared, and professional tax is deducted based on these slabs. There are also a few states and union territories in India that do not charge professional tax. The computed tax for the year is divided into twelve equal installments, paid every month.

It should be well-noted that professional tax is a deductible amount for computing taxable income under the Income-tax Act, 1961. This means that it can be deducted from your taxable income.

Tax Collection

Professional tax is collected by the Tax Department of the state, and it eventually is utilized by the state’s local municipality corporation.

Responsibility to pay

For instance, The Karnataka Professional tax department exempts:

• Employees

  An employer is responsible for deducting and consequently paying professional tax to the respective state government.

• Legal entities

  Corporates, partnership firms, sole proprietorships, and other legal entities are also considered as a person that is carrying on a trade or profession and is required to pay professional tax on such trade or profession. In such cases, the entity needs to register, obtain a professional tax registration certificate, and pay such tax on behalf of their trade or profession. Additionally, they would also need a professional tax enrolment certificate to be able to deduct and pay taxes for their employees. Assuming that the place of business spans multiple states or places, in such a case, the registration certificate has to be obtained separately from each authority concerning the appropriate jurisdiction.

• Freelancers

  Freelancing businesses that do not generally have employees are also required to register themselves subject to the monetary threshold provided by the respective state’s legislation. However, the levy is subject to certain exemptions provided by respective states.

  1. Parents or guardians of a person who suffers from mental retardation
  2. Blind persons

Professional Tax Slabs

As established, the state government governs the levy of this tax and therefore it varies in different states. Although, all states follow an income-slab-based system for the computation of this tax. Note that, Article 276 of the Constitution has maintained a maximum cap of Rs. 2,500/- per person per year.

In this section, you can find the slab rates for professional tax for certain states:

1. Maharashtra:

   Monthly Salary	PT Per Month	Remarks
   For male employees: Less than Rs. 7500/- Rs. 7,501/- to Rs. 10,000/- Rs.10,001/- and above	NIL Rs. 175/- Rs. 200/-	Rs. 300/- for February
   For female employees: Less than Rs. 10,000/- Rs.10,001/- and above	NIL Rs. 200/-	Rs. 300/- for February

2. Karnataka:

   Monthly Salary	PT Per Month
   Up to Rs. 15,000/- More than Rs. 15,000/-	NIL Rs. 200/-

3. Madhya Pradesh:

   Monthly Salary	PT Per Month
   Up to Rs. 1.5 Lakhs Rs. 1.5 lakhs to Rs. 1.8 lakhs Rs. 1.8 lakhs and above	NIL Rs. 125/- Rs. 212/-

4. West Bengal:

   Monthly Salary	PT Per Month
   Up to Rs. 8500/- Rs. 8501/- to Rs. 10,000/- Rs. 10,001/- to Rs. 15,000/- Rs. 15,001/- to Rs. 25,000/- Rs. 25,001/- to Rs. 40,000/- More than Rs. 40,000/-	NIL Rs. 90/- Rs. 110/- Rs. 130/- Rs. 150/- Rs. 200/-

Consequences of violation

The actual amount of penalty or interest may vary from one state to another. However, a penalty may be levied by all or most of such states in case of non-registration, once applicable.

Additionally, penalties are charged for:

1. Not making the payment of tax within the specified due dates
2. Not filing the return within the specified due dates

Example: In the state of Maharashtra

1. A penalty of Rs. 5/- per day is imposed for the delay in registration
2. Interest at 1.25% per month is charged for delay in payment
3. A penalty of 10% of the total amount of tax is imposed in case of delay or non-payment
4. Rs. 1000/- to Rs. 2000/- is charged as a penalty for delay in filing the return

Final word

Most salaried employees are ignorant about this deduction that appears on their monthly payslips. But now, you’re covered – concerning the meaning of professional tax, the brief regulations, and its importance in the tax structure of our country.

Frequently Asked Questions

Why do we pay professional tax?

Professional tax is a source of revenue for the government. It is utilised towards bettering the services for professionals in that particular state. Therefore, it is imminent for every employer to deduct professional tax on salary.

What type of tax is professional tax?

Professional tax is a Direct Tax that is levied on persons earning an income by the way of practising a profession, employment, or trade. Income tax, which is also a Direct Tax, is levied by the Central Government. However, professional tax is levied by the government of a state or Union Territory in India.