Professional Tax: Everything You Need to Know

Many salaried employees have encountered the term "professional tax" on their payslips or Form 16. However, not everyone understands what it is and why it is deducted from their salary income. When you examine your payslip, you'll often see a small deduction alongside HRA, conveyance, and basic salary break-ups. This deduction, typically around ₹200, is known as professional tax.

Professional tax varies by state, and in some regions, you might find no deduction under this heading. This article aims to clarify what professional tax is, why it is deducted, and whether it only affects salaried individuals.

What is Professional Tax?

The term "professional tax" can be broad. It applies not just to professionals like doctors and lawyers, but also to salaried employees, business owners, and freelancers. This tax is levied on income generated from professions, trades, or employment, exceeding a certain threshold set by the state government.

PT: A Deductible Expense

One benefit of professional tax is its deductibility.  The Income Tax Act of 1961 allows you to subtract the professional tax you pay from your taxable income when filing your income tax return. This reduces your overall tax liability.

Who Levies Professional Tax in India?

It's important to distinguish professional tax from income tax. Income tax is a central government levy on your overall income. In contrast, professional tax is a specific tax imposed by state governments based on Article 276 of the Constitution, which grants them the power to tax professions, trades, and employment. Not all states choose to implement professional tax.

How to Register/File Professional Tax?

Managing professional tax involves both registration and regular filing. Here's a breakdown of the key requirements:

Registration:

1. Within 30 Days: Businesses must register for professional tax within 30 days of hiring their first employee. Similarly, independent professionals need to register within 30 days of starting their practice.
2. State Tax Department: Applications for registration certificates are submitted to the state tax department where the business operates or the professional resides.
3. Multiple Locations: Businesses with operations in multiple states need to register separately with the relevant tax department in each location.

Tax Deduction and Filing:

1. Salary Deduction: Employers are responsible for deducting professional tax from their employees' salaries or wages.
2. Payment Frequency: The frequency of tax payments varies by state, but it often depends on the number of employees. Businesses with a higher number of employees (the specific threshold can vary) might need to make payments more frequently, such as bi-monthly (by the 15th of the next month following the quarter's end). For smaller businesses, payments might be submitted quarterly.

Professional Tax Applicable States Across India

Applicable States

Professional tax in Maharashtra

Professional tax in Karnataka

Professional tax in Telangana

Professional tax in West Bengal

Professional tax in Andhra Pradesh

Professional tax in Tamil Nadu

Professional tax in Kerala

Professional tax in Jharkhand

Professional tax in Nagaland

Professional tax in Sikkim

Professional tax in Assam

Professional tax in Manipur

Professional tax in Odisha

Professional tax in Bihar

Professional tax in Meghalaya

Professional tax in Puducherry

Professional tax in Gujarat

Professional tax in Madhya Pradesh

Professional tax in Mizoram

Professional tax in Punjab

Professional tax in Tripura

Non-Applicable States

These states do not levy professional tax as of now:

1. Andaman and Nicobar Islands
2. Arunachal Pradesh
3. Chandigarh
4. Chhattisgarh
5. Dadar and Nagar Haveli
6. Daman and Diu
7. Delhi
8. Goa
9. Haryana
10. Himachal Pradesh
11. Jammu and Kashmir
12. Ladakh
13. Lakshadweep
14. Rajasthan
15. Uttar Pradesh
16. Uttarakhand

Professional Tax Exemptions

Professional tax exemptions can vary slightly by state. Under the Professional Tax Rules, the following individuals are exempt from paying professional tax:

Who is Responsible for Deducting Professional Tax?

Employers must deduct professional tax from their employees' salaries and remit the collected amount to the state government. They are also required to submit a return to the tax department in the specified form and within the given timeframe, including proof of payment.

Overview of Professional Tax in India

States in India can levy a maximum professional tax of INR 2500 per year. The amount paid is deductible under the Income Tax Act. Professional tax provides revenue for state governments to support welfare and development initiatives. Employers are responsible for deducting this tax from salaries and paying it to the state government, while other individuals (freelancers or business owners) must pay directly or through local bodies.

Penalties for Not Filing Professional Tax

Failure to comply with professional tax regulations can result in penalties, which vary by state. States may impose fines for not registering when professional tax legislation becomes applicable. Additionally, there are penalties for late payment and failure to file returns on time.

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