What is Professional Tax?

Professional Tax – What is Professional Tax? Rates & Compliance

The term ‘professional tax’ would have been mentioned on the payslips/Form 16 issued to salaried employees, so they might already be very familiar with it. There are those who may not understand what it is and why it is listed as a deduction on their payslips/Form 16. As a result, this article attempts to provide a better understanding of ‘Professional tax’, why it is deducted, and whether it is only borne by the salaried class.

Who levies professional tax and what is it?

In spite of the name, the term ‘Professional Tax’ does not entirely convey its real meaning. It is not just a tax levied only against professionals.

A professional tax is a tax levied on any profession, trade, or employment based on the income it generates. Employees, a person carrying on business, freelancers, professionals, etc., are subject to it, if their income exceeds the monetary threshold.

A law concerning income taxes can only be passed by the Parliament pursuant to Article 246 of the Constitution of India. The state has no authority over the concurrent or state lists.

However, professional tax is a kind of income tax levied by state governments (not all states chose to levy professional tax). In accordance with Article 276 of the Constitution of India, which regulates taxes on professions, trades, callings, and employment, the State Government is also empowered to make laws relating to professional tax.

Professional tax, as well as other deductible amounts, can be deducted from taxable income for the purpose of the Income-tax Act, 1961.

Tax rate for professionals

The State Government levying professional tax is different in different states. Each state has its own laws and regulations governing professional tax imposed by that state. However, all the states follow a slab system based on income to assess professional tax.

In addition, article 276 of the Constitution, which allows the state government to levy professional tax, establishes that professional taxes cannot exceed Rs 2,500.

In the country, there are not many illustrative slabs

• Karnataka’s professional tax rate slabs

Wages/salaries up to Rs15,000 per month	Null
Over Rs 15,000 monthly salary/wage	Monthly fee of Rs 200

• • Andhra Pradesh’s professional tax rate slabs

Up to Rs 15,000 in salary/wage per month	Null
A salary or wage of between Rs 15,001 and Rs 20,000 per month	It costs Rs. 150 per month
Salary/wage > 20000 rupees per month	Monthly fee of 200 rupees

Is it the professional tax collector’s responsibility to collect and pay professional tax?

It is collected by the Commercial Tax Department, which is in turn collected by the respective states. The collected funds eventually reach the municipalities’ funds.

Taxpayers who are responsible for paying professional taxes

•  Employers are responsible for withholding and paying professional tax to the state government based on the monetary threshold set forth by the state’s legislation in the case of employees. 
• A person carrying on trade or profession, as an employer (corporations, partnership firms, sole proprietorships, etc.) is also required to pay professional tax on the trade or profession he/she is carrying on, subject to the monetary threshold specified by the respective State’s legislation.
  In such a case, the employer needs to register and obtain both a professional tax registration certificate to be able to pay professional tax on his trade/profession and a professional tax enrollment certificate to be able to deduct professional tax from his employees and pay it. In addition, each office may need its own registration, depending on the state’s laws.
• Individuals who are engaged in freelancing without any employees must also register with their respective state’s government according to any monetary thresholds provided for by the law of that state. 

Nevertheless, certain categories of persons are exempt from a professional tax levy provided by the respective State. Karnataka Professional tax is exempt from levy for parents and guardians of people with mental retardation and blindness, among others.

How do I pay professional tax? Do I have to file a return?

Generally, professional taxes may be paid online or offline. Additionally, depending on the state’s requirements, professional tax returns need to be filed periodically.

A violation of professional tax regulations has the following consequences:

The actual amount of penalty or interest varies from State to State, but for non-registration once professional tax legislation is applicable, a penalty is levied by all states.

Further, if the payment isn’t made by the due date and the return isn’t filed by the deadline, you’ll be penalized.

The State of Maharashtra, for instance, imposes a penalty of Rs 5 per day for late registration, interest of 1.25% per month for late payment, a penalty of 10% of the amount of professional tax if paid late or unpaid, and a penalty of Rs 1000 to Rs 2000 if the return is not filed on time.