What is Professional Tax?

Many salaried employees are likely to be familiar with the term ‘professional tax’ as it is included in their payslip/Form 16. However, they may or may not understand what it is and why it shows up on their payslip/Form 16 as a deduction from their salary income. As a result, this website aims to explain what a “professional tax” is, why it is deducted, and whether it is entirely borne by the salaried class.

What is Professional Tax?

Professional tax, as the name suggests, is a tax primarily levied on businesses. It is a direct tax and is levied on various professionals, traders and occupations, and is calculated on the basis of the revenue generated by those professionals, traders and occupations.

Employees, self-employed individuals, freelancers, professionals and all earning more than monetary amount are subject to this.

According to Article 246 of the Indian Constitution, only the Parliament has the power to make laws relating to the Union List, which includes income tax. Only the Concurrent and State Lists confer state legislative powers.

The state government has a type of income tax known as professional tax (not all states in the country choose to levy professional tax). Despite the fact that it is an income tax, the state government has the power to make professional tax laws under Article 276 of the Indian Constitution, which governs taxes on professionals, traders, calling and employment.

For the Income Tax Act of 1961, Professional Tax is the amount that can be deducted from taxable income.

Unlike income tax, which is levied by the central government in India, professional tax is levied by the states or union territories. A professional tax is levied in most Indian states, but not all. While some states have professional tax like Karnataka and Maharashtra, Delhi and Haryana, some do not.

Self-employed people who work for themselves and are liable to professional tax will have to pay tax to the state government. The nodal organization for collection of professional tax on the basis of tax slab which varies by state and union territory is the commercial tax department of that state or union territory.

The tax is based on an individual’s annual taxable income; However, it can be paid annually or monthly. Self-employed taxpayers have to obtain a certificate of enrollment from the appropriate authority (of the respective state) in the prescribed manner.

However, in thecase of salaried employees and salary earners, the employer is required to deduct and deposit professional tax from the employee’s remuneration on a monthly basis (as per the applicable professional tax slab).

In order to deposit the professional tax deducted, the employer has to obtain a certificate of registration from the appropriate government.

What is meant by professional tax? (Professional Tax Meaning in Hindi)

Professional tax (professional tax) is a tax that the state government levies on any person who earns income by any means. Contrary to the name, professional tax is not only for professionals but for all individuals. This list includes all professionals, trades calling, and all types of persons from employment and trade.

The professional tax appears on the deduction side of the pay slip.

Who is eligible for Professional Tax? (Eligibility for Profession Tax in Hindi)

Professional tax is applicable on the following:

  • a person
  • Hindu Undivided Family (HUF)
  • Company or firm or co-operative society or association of persons or body of persons, whether incorporated or not

The owner of a business is responsible for deducting this tax amount from his employees. They are also responsible for paying the collected amount to the concerned government department. Additionally, depending on the nature of the business, tax payments can be monthly, semi-annually or annually.

In addition, professional tax returns have to be filed with the tax departments at the end of the financial year. The filing of P-tax return should be in the pre-described form (with proof of tax payment) within the stipulated time. Further, if tax payment proof is not attached at the time of filing P-Tax return, the application will be treated as invalid or incomplete.

Maximum Professional Tax Amount

A maximum of Rs 2,500 per financial year can be levied as professional tax on an individual.

Professional Tax Act in Hindi

Applicability of Professional Tax as per Constitution of India: Article 276 of the Constitution of India provides that “tax shall be levied and collected on professions, trades, callings and employments in accordance with the provisions of this Act.

Professional tax is deductible under section 16(iii) of the Income Tax Act

As per section 16(iii) of the Income Tax Act 1961, professional tax paid by an employee is allowed as a deduction from his gross salary income.

Professional Tax Benefits to Employee in Hindi

The total amount of professional tax paid during the year is allowed as deduction under the Income Tax Act. Professional tax is a source of revenue for the state governments which helps in implementing schemes for the welfare and development of the region.

Exemption from Profession Tax

Certain persons are exempted from this tax under professional tax rules. The following persons are exempted from paying this tax:

  • Parents whose children suffer from permanent disability or mental retardation.
  • Members of the forces defined in the Air Force Act, 1950, the Army Act, 1950 and the Navy Act, 1957. It also includes members of the serving and auxiliary forces in the state.
  • Workers in the textile industry (Badli workers).
  • Persons with permanent physical disability (including blindness).
  • Women as an agent under the Director of Small Savings or Mahila Pradhan Regional Savings Scheme.
  • Also, persons over 65 years of age.

Who collects this tax? (Who collects Profession Tax)

Employers collect a certain amount as professional tax from the monthly salary of their employees. This part is paid by the employer to the government. If they fail to do so, they may be subject to penalties for not collecting or failing to pay professional tax. Also, if you do it for someone, you are liable to pay professional tax yourself.

If you are a professional who does not work with an employer, you can register for the same by applying through the form and paying your professional tax. After receiving the form, a registration number will be issued to the individual. Professional tax can be paid in banks under these registration numbers. It is important to note that, in some states, the government provides exemption on taxes if it is paid in lump sum for two years at a time. This is done to inquire about the professional tax rules in your state.

Various Professional Tax Slabs

It varies from state to state as it is a tax levied by a state. Professional tax is deducted as per the slab established by each state and union territory. With the exception of payments paid in February, which are higher than others, the annual professional tax payable is divided into 12 equal monthly payments.

It is possible that different types of income from different industries will be taxed differently. Here are the tax slabs for several states and union territories of India:

Professionals Tax in Maharashtra

Monthly Salary (in Rs.) Taxes (in Rs. per month)
Up to Rs 7,500 for men Zero
Up to Rs 10,000 for women Zero
Rs 7,501 to Rs 10,000 Rs 175
10,000 and above Rs 200 for 12 months; For the last month Rs. 300

Professional Tax in Karnataka

Monthly Salary (in Rs.) Taxes (in Rs. per month)
14,999 up to Rs. Zero
Above Rs 15,000 200 rupees

Professional Tax in West Bengal

Monthly Salary (in Rs.) Taxes (in Rs. per month)
up to Rs.10,000 Zero
Rs.10,001 to Rs.15,000 Rs 110
Rs 15,001 to 25,000 130 rupees
Rs.25,001 to Rs.40,000 150 rupees
Above Rs 40,000 200 rupees

Professional Tax in Madhya Pradesh

Monthly Salary (in Rs.) Taxes (in Rs. per month)
up to Rs 18,750 Zero
Rs 18,751 to Rs 25,000 Rs 125
Rs.25,001 to Rs.33,333 Rs 167
Rs 33,334 and above Rs 208 for 11 months; 212 for last month

Professional Tax in Tamil Nadu

Monthly Salary (in Rs.) Taxes (in Rs. per month)
up to Rs.3,500 Zero
Rs 3,501 to Rs 5,000 Rs 22.5
Rs 5,001 to 7,500 Rs 52.5
Rs 7,501 to Rs 10,000 115 rupees
10,001 to 12,500 Rs.171 Rs
Above Rs 12,500 Rs 208

Professional Tax in Andhra Pradesh

Monthly Salary (in Rs.) Taxes (in Rs. per month)
up to Rs 15,000 Zero
Rs 15,001 to 20,000 150 rupees
Above Rs 20,000 200 rupees

Professional Tax in Gujarat

Monthly Salary (in Rs.) Taxes (in Rs. Per Month)
Up to Rs 5,999 Zero
Rs 6,000 to 8,999 80 rupees
9,000 to Rs 11,999 150 rupees
Rs 12,000 and above 200 rupees

Professional Tax in Odisha

Monthly Salary (in Rs.) Taxes (in Rs. per month)
up to Rs 13,304 Zero
Rs 13,305 to Rs 25,000 Rs 125
Rupee. over 25,001 For 12 months Rs. 200; 300 rupees for last month

 

How to Calculate Professional Tax? (How to Calculate Professional Tax)

Pre-determined slabs based on monthly or annual salary are used to calculate professional tax. It is generally Rs 200 per month, unless the total tax for that year does not exceed Rs 2,500.

To calculate professional tax, you need to do the following:

Step 1: Determine if the state where you live has a professional tax applicable.

Step 2: If you answered yes, then calculate the tax amount on the basis of your monthly income.

Step 3: Check the tax rates for your pay bracket. This provides you with an estimate of how much professional tax you can deduct each month.

The intricacies that revolve around professional tax can be difficult to understand, thus, you should consult a professional or turn to a reliable source for assistance.

Professional Tax – FAQs

How is Professional Tax Calculated?

Professional tax is calculated on the basis of pre-determined slabs and salary or monthly income levels.

What is a Professional Tax in Income Tax?

Professional tax can be defined as a tax which is levied by the state government on all persons earning a living by any means. It should not be confused with the definition of other professionals such as doctors or lawyers. It is a type of tax which has to be paid by every person earning income.

Can we claim refund of professional tax?

Professional tax is paid at the end of the month, assuming you have practiced in that month. Hence once professional tax is paid, there can be no refund. There is usually no refund mechanism under professional tax.

Who is eligible for Professional Tax?

A person earning income from salary or practicing profession like chartered accountant, company secretary, lawyer, doctor etc. is required to pay this professional tax. Different states have different rates and collection methods. Professional tax is levied every month in India.

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