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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Professional Tax is a direct tax imposed by state governments in India on individuals engaged in various professions, trades, and employment.
When you start earning, one of the first things you notice is that a part of your salary goes towards various taxes. Among these, you might have come across something called “Professional Tax” on your payslip. But what exactly is it? Is it a tax on your profession? Not quite.
Professional Tax is a tax levied by state governments in India on individuals earning an income from salary, practicing a profession, or running a business. Despite its name, it isn’t restricted to professionals like doctors, lawyers, or engineers. Whether you’re a salaried employee, a freelancer, or a business owner, you might be liable to pay this tax.
Having a thorough understanding of what is professional tax in salary, and its impact can help you deep dive into this area.
As per professional tax definition, it is a state-specific direct tax levied on your income. Your employer deducts it directly from your gross salary, with the amount depending on your income bracket and the state you reside in. Each state has its own salary slabs and corresponding tax rates, with Andhra Pradesh, Maharashtra, and Gujarat as examples of states where this tax applies. Remember, the maximum you can be charged is ₹2500 per year.
The professional tax follows the principle of “power with responsibility.” Though Article 246 of the Constitution grants Parliament power over income tax, professional tax falls under state and concurrent lists. It empowers individual states to choose whether to levy it, making it a flexible source of revenue.
While both professional and income tax are direct taxes levied on income, their collectors differ significantly. Income tax, as declared by Article 246 of the Indian Constitution, falls under the jurisdiction of the Central Government. Parliament wields the sole power to legislate concerning it.
On the other hand, Article 276 empowers individual states to levy professional tax on anyone earning income within their boundaries. This autonomy explains why certain states, like Arunachal Pradesh, Rajasthan, and Haryana, choose not to implement professional tax.
Therefore, while state governments hold professional tax reins, their specific collection and exemption policies vary. Some states, like Karnataka and West Bengal, require citizens to pay professional tax directly online or offline. Others, like Maharashtra, require employers to deduct and deposit the tax.
Professional tax in India applies to a broad range of entities generating income, not just individuals. Here is the breakdown:
For salaried individuals, the onus of professional tax rests with their employers. They are responsible for:
Professional tax differs for individuals due to several factors:
Now that you know professional tax can differ from person to person based on their profession, income level, and employment status, let us take a look at different types of professional tax:
Professional tax is collected by employers from monthly salaries, and the Commercial Tax Department is responsible for collecting this tax. Employers then pay the tax to the government, failing which they can be penalized for not collecting or failing to pay the tax.
Freelancers, consultants, and independent contractors who work for themselves are subject to the same professional tax as regular employees. Nevertheless, there are variations in the procedures and requirements. Freelancers, in contrast to employees on a fixed income, handle their tax obligations with the state.
Companies deduct professional tax from their employee’s salaries based on state-specific slab rates and pay these deductions to the state government on time. This method includes keeping correct records of deductions and making payments on time to avoid fines.
The due date for professional tax payment differs according to the norms of each state in India. In general, the most important aspects are:
Professional tax limits refer to the maximum amount that can be levied as professional tax on an individual or business, and these limits are determined by state regulations in India. Likewise, in India, a maximum of ₹2,500 can be levied as a professional tax on any person per financial year. According to Section 16 (iii) of the Income Tax Act 1961, the professional tax paid by an employee is allowed as a deduction from their gross salary income.
Professional tax is calculated monthly based on gross salary for that particular month. The tax is levied on the portion of an individual’s income after deducting items like EPF, contributions, gratuity, leave deductions, or any past loans taken from the employer. Each state in India has its own slab rates and rules for Professional Tax, which can differ significantly from one state to another. For instance, Maharashtra, Karnataka, and West Bengal have different slab rates.
Example: If one is working in Gujrat and earning ₹25,000 a month, a professional tax will be deducted of ₹200 per month for 11 months and ₹300 for the 12th month.
Calculation:
Total Professional Tax=(200×11)+300
Total Professional Tax=2200+300=2500
As per section 16(iii) of the Income Tax Act 1961, employers can deduct professional tax from their employees while filing their monthly income tax reports. This tax is considered as tax deducted from source and is sent to the state exchequer or, in some states, to the Municipal Corporation.
Non-compliance with professional tax laws comes with challenges, varying depending on the state. Here are the repercussions of breaking the rules of professional tax:
The Indian Constitution grants individual states the power to levy and regulate professional tax. This autonomy leads to variations in:
Each state sets its professional tax slabs based on income levels. While some states like Maharashtra have fixed monthly rates, others like Tamil Nadu have half-yearly slabs.
The specific rules and procedures surrounding professional tax differ from state to state.
Here is a quick comparison of professional tax across various prominent states:
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While professional tax may seem like a minor deduction on your payslip, its impact on state infrastructure and services is undeniable. Remember, contributing your share does not just fulfill a legal obligation; it is an investment in the community you live and work in.
So, take the time to learn about your state’s specific regulations, stay informed about deadlines, and pay your professional tax with pride – it is your contribution to building a better India, one paycheck at a time.
1
Professional tax is calculated based on several factors including income level, profession, and state regulations. A general outline of how it is calculated is mentioned above.
2
Out of the 28 states and 6 union territories in India, professional tax is applicable in 21 states and 1 union territory. It is important for individuals and businesses to check the specific professional tax regulations in their respective states to ensure compliance with local laws.
3
Professional tax rates vary widely across Indian states, reflecting local regulations and economic conditions. A general overview of how these rates can differ is mentioned above. Some states provide exemptions or reduced rates for certain categories of individuals, such as senior citizens or specific professions.
4
According to Section 276(2) of the Indian Constitution, employers must deduct professional tax from employee salaries each month and pay it to the government. The most professional tax assessed in a calendar year is ₹2500.
5
An employee’s professional tax payment may be deducted from their gross salary when completing their income tax reports.
6
Senior citizens, self-employed individuals, employees not working for more than 120 days in a financial year, and disabled individuals do not have to pay professional tax in states like Karnataka. Every state has their own rules and regulations.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
