Understanding the Professional Tax System

If you are a salaried employee, you must come across a term professional tax on your salary slip. Do you know what is a professional tax? Is it just for salaried professionals? Read on to find out!

What is Professional Tax?

Professional tax is a fee levied by Indian states on all income earners, regardless of the source of income. Salaried individuals, freelancers, consultants, engineers, doctors, and business owners must pay this tax. It is deducted by your employer from the gross salary every month. If you are self-employed, you must register and pay the tax.

Each state government has its own laws for charging professional tax. However, the maximum tax limit is Rs. 2,500 per year per individual. Almost every state charges a different rate of tax based on the income slab.

Key Differences Between Professional Tax and TDS

Here are the key differences between professional tax and TDS (tax deducted at source):

Points of Deduction	Professional Tax	TDS
Authority	State Government.	Central Government.
Applies to	Income from salaries, professions, and businesses.	Salaries, rent, interest on fixed deposits, commissions, etc.
Purpose	Generates revenue for the state government for development programs and social welfare initiatives.	Generates a stable revenue for the Government of India, helping streamline the process of income tax collection.
Process of calculation	For salaried individual, the employer deducts the professional tax amount, while self-employed individuals pay tax themselves.	Based on income tax slabs applicable to your total income.
Basis of deduction	State-wise professional tax slab rates.	Income tax slab.

 

Professional Tax for Salaried Individuals, Self-employed, and Companies

Let’s us understand the professional tax for salaried individuals, self-employed and companies:

• Professional Tax for Salaried Individuals

If you are a salaried individual, your employer deducts professional tax based on your state's slabs and your monthly salary. This deduction is usually reflected on your pay slip. For this deduction, you do not need to worry about direct payment, as your employer handles it.

• Self-Employed

If you are self-employed, you must register with the Government and pay professional tax yourself. The rules for self-employed individuals vary by state. You must check your state's regulations for details and registration procedures.

• Companies

If you own a company in India, you are required to pay a lump sum amount as a professional tax based on state slabs and deposit it with the Government. You are responsible for ensuring proper collection and remittance. You must also pay a professional tax for your company based on your income.

List of States Where Professional Tax is Applicable

Here's the list of states where professional tax is applicable:

Andhra Pradesh	Kerala
Bihar	Maharashtra
Chhattisgarh	Manipur
Assam	Mizoram
Gujarat	Meghalaya
Karnataka	Puducherry
Jharkhand	Odisha
Madhya Pradesh	Nagaland
Punjab	West Bengal
Tamil Nadu	Tripura
Sikkim	Telangana

 

List of States Where Professional Tax is Not Applicable

Here's the list of states where professional tax is not levied:

Andaman and Nicobar Islands	Delhi
Chandigarh	Haryana
Dadra and Nagar Haveli	Lakshadweep
Uttarakhand	Rajasthan
Daman and Diu	Arunachal Pradesh
Uttar Pradesh	Jammu and Kashmir

 

Why Does Professional Tax Vary Depending on the State?

Professional tax is charged by state governments so that they can implement the tax and collect revenue for their states’ development programs and social welfare initiatives. Hence, this tax varies from state to state based on individual income and cost of living.

Professional Tax Eligibility

The following individuals are required to pay professional tax in India:

• Salaried individuals
• Hindu Undivided Family (HUF)
• Engineers
• Chartered Accountants
• Architects
• A firm, company, cooperative society, body of individuals, etc
• Legal and medical practitioners
• Factory occupiers
• Consultants of tax and management
• Licensed shopkeepers

Exemptions in Professional Tax

Here are some common exemptions for professional tax in India:

1. Senior Citizens: Individuals above age 65 are often exempt from professional tax.

2. Armed Forces: Members of the Indian Army, Navy, and Air Force are exempted.

3. Disabled Persons or Parents of Disabled: Individuals with physical or mental disabilities and their parents are exempt.

4. Specific Professions: Charitable hospitals that come below the Taluk level and temporary workers are also exempt from professional tax.

Also Read - Tax Exemption & Its Various Categories

How to Pay Professional Tax?

As the professional tax is levied by the state government, the method of payment may differ from state to state. Professional tax can be paid online and offline. To pay online, must visit your state’s official website.

To pay professional tax offline, you must visit your local professional tax department office, and the representatives will guide you through the process.

Consequences of Violation of Professional Tax Regulation

The consequences of violation of professional tax regulation depend on the state regulations of India. However, the following are the common consequences of not registering for professional tax or late filing:

1. Penalties

Every state has its penalty structure for not registering for professional tax, delays in payment, or late filing of returns. These penalties can include a fixed amount per day, a percentage of the tax amount itself, or a range depending on the duration of the delay. 

2. Interest

Late payment of professional tax may incur interest charges. The specific rate may vary by state.

Also Read - Professional Tax - Its Meaning, Slab Rates, and Compliance

To Conclude

Understanding professional tax is crucial for those working in India. By knowing the fundamentals of professional tax, you can effectively navigate the complexities of the tax system, ensure compliance, and eliminate potential risks. However, you must remember that the tax slabs vary by state, so refer to official resources for specific details.

Note: The information provided in this blog is solely for knowledge purposes and is subject to change. It is advisable to seek financial advise from a consultant before coming to any decision.

FAQs

1. Is any professional tax applicable to union territories?

Except for Puducherry, individuals earning a salary or wage are not required to pay professional tax in union territories.

2. Is it compulsory to pay professional tax?

Any individual who earns revenue by working under an employer or company must pay professional tax.

3. Is professional tax applicable for freelancers?

Yes, individuals involved in the freelancing career are also required to register for professional tax as per their state’s slab rate.

4. What Is the Maximum Limit for Professional Tax in India?

According to Section 16 (iii) of the Income Tax Act 1961, the maximum limit for professional tax that can be levied on any individual in India is Rs. 2,500 per year.

Disclaimer

This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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