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What is Professional Tax - All You Need to Know

Professional tax is an essential direct tax levied by the government on professionals to support the country's revenue generation.

  • 951 Views | Updated on: Mar 21, 2024

Professional Tax is a direct tax imposed by state governments in India on individuals engaged in various professions, trades, and employment. It is a mandatory financial obligation that contributes to the revenue stream of the respective state governments.

Regardless of your profession, paying professional tax is mandatory if you hold a regular job with a salary. You will find it deducted within your salary slip, alongside the usual deductions like TDS (Tax Deducted at Source), EPF (Employee Provident Fund), and HRA (House Rent Allowance). This tax contributes to state revenue and applies to all salary earners, not just individuals in specific professions.

What is Professional Tax, and How Does It Work?

Professional tax 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.

Who Collects Professional Tax?

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, have citizens pay professional tax directly online or offline. Others, like Maharashtra, place the responsibility of deducting and depositing the tax on employers.

Who Pays Professional Tax in India?

Professional tax in India applies to a broad range of entities generating income, not just individuals. Here is the breakdown:

  • Individuals: Anyone earning income through any profession, trade, or employment falls under this category.
  • Hindu Undivided Families (HUFs): These traditional family units with shared income are also subject to professional tax.
  • Businesses: Companies, firms, cooperative societies, associations, and even groups of individuals engaged in income-generating activities come under the purview of professional tax.

Employer Responsibilities

For salaried individuals, the onus of professional tax rests with their employers. They are responsible for:

  • Withholding the Tax: Employers deduct the applicable professional tax amount from employees’ salaries based on their income slab and state regulations.
  • Tax Remittance: The collected professional tax must be regularly deposited with the relevant government agency. The payment frequency may vary from monthly to annually, depending on the type of business.
  • Tax Return Filing: Companies must file professional tax returns with the authorities after the fiscal year ends. These returns should be submitted in the prescribed format and within the stipulated timeframe.

Consequences of Not Paying Professional Tax in India

Non-compliance with professional tax laws comes with challenges, varying depending on the state. Here is a breakdown of the consequences:

Repercussions of Breaking the Rules

  • Registration Errors: Both companies and individuals are responsible for registering for professional tax based on income levels. Failure to register can lead to monetary penalties, often reaching ₹1,000 for initial company registration lapses. This can also include fines for additional omissions during the registration process.
  • Payment Delinquencies: Late payments incur interest charges, adding to your financial burden. Some states, like Karnataka, impose additional fines for non-payment as well.
  • Missed Filings: Failing to file professional tax returns attracts penalties, varying by state.

Why the State-to-State Differences?

The Indian Constitution grants individual states the power to levy and regulate professional tax. This autonomy leads to variations in:

Tax Rates

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.

Legislation and Regulations

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:

State

Income Range (₹)

Professional Tax Range (₹)

Andhra Pradesh

15,000+ (monthly)

150-200

Assam

10,001+ (monthly)

150 - 208

Bihar

7,500+ (monthly)

100 - 208

Chhattisgarh

7,501+ (monthly)

100 - 200

Gujarat

20,000+ (monthly)

200

Jharkhand

7,501+ (monthly)

100 - 208

Karnataka

15,000+ (monthly)

200

Kerala

11,000+ (monthly)

20 - 208

Madhya Pradesh

18,751+ (monthly)

125 - 208

Maharashtra

7,501+ (monthly)

175 - 200

Manipur

10,000+ (monthly)

100 - 208

Meghalaya

10,000+ (monthly)

165 - 208

Odisha

20,000+ (monthly)

125 - 200

Puducherry

833+ (monthly)

125 - 208

Sikkim

20,001+ (monthly)

125-200

Tamil Nadu

21,001+ (monthly)

20 - 208

Telangana

7,501+ (monthly)

125 - 200

West Bengal

40,000+ (monthly)

110 - 200

Way Forward

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 fulfil 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.

Key Takeaways

  • Regardless of the type of your job, earning a salary means paying professional tax. It is deducted from your paycheck and contributes to state revenues.
  • Each state decides if they levy professional tax, and the amount you pay depends on your income and your state laws.
  • For salaried individuals, your employer deducts and deposits the tax. Other income earners have to register and pay themselves.
  • Penalties and interest charges are levied on those who do not register, pay late, or miss filing returns.
  • Different states have different tax rates, rules, and collection methods. Check your state’s guidelines for specific details.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
Reviewed By :
Prasad Pimple

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

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