Professional Tax Act

The respective state governments in India levy the professional tax on income from profession or employment. The professionals earning an income from salary or other practices such as a lawyer, teacher, doctor, chartered accountant, etc. are required to pay professional tax. In case of salaried and wage earners, the professional tax is liable to be deducted by the employer from the salary/wages and the same is to be deposited to the state government. In case of other class of individuals, this tax is liable to be paid by the employee himself. The tax calculation and amount collected may vary from one state to another, but it has a maximum limit of INR 2500/- per year.

Professional Tax Registration and Returns

Professional Tax Registration is mandatory within 30 days of employing staff in a business or, in the case of professionals, 30 days from the start of the practice. Professional tax needs to be deducted from the salary or wages paid amount. Application for the Registration Certificate should be made to the assesse’s state tax department within 30 days of employing staff for his business. If the assesse’s has more than one place of work, then application should be made separately to each authority with respect to the place of work under the jurisdiction of that authority.

If an employer has employed more than 20 employees, he is required to make the payment within 15 days from the end of the month. However, if an employer has less than 20 employees, he is required to pay quarterly (i.e. by the 15th of next month from the end of the quarter).

Professional Tax Applicable States Across India

Out of the 29 states and 7 union territories, some of the states which currently impose professional tax in India are Karnataka, Tamil Nadu, Bihar, Andhra Pradesh, Maharashtra, Assam, Kerala, Telangana, Gujarat, Meghalaya, Odisha, Madhya Pradesh, West Bengal, Tripura and Sikkim. As aforementioned, businesspersons, individual workers and merchants come under this tax’s ambit.

Professional tax is levied by the Municipal Corporation/ authority of any state and union territory. It is levied through predetermined tax slabs and is paid on monthly basis. It is payable by private company employees or may also be payable by people who earn salary in general.

The states which impose professional tax in India are listed below:

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

Not Applicable States

• Central
• Andaman and Nicobar Islands
• Arunachal Pradesh
• Chandigarh
• Chhattisgarh
• Dadra and Nagar Haveli
• Daman and Diu
• Delhi
• Goa
• Haryana
• Himachal Pradesh
• Jammu and Kashmir
• Lakshadweep
• Punjab
• Rajasthan
• Uttar Pradesh
• Uttaranchal

Exemptions

There are exemptions provided for certain individuals to pay Professional Tax under the Professional Tax Rules.

The following individuals are exempted to pay Professional Tax:

• Parents of children with permanent disability or mental disability.
• Members of the forces as defined in the Army Act, 1950, the Air Force Act, 1950 and the Navy Act, 1957 including members of auxiliary forces or reservists, serving in the state.
• Badli workers in the textile industry.
• An individual suffering from a permanent physical disability (including blindness).
• Women exclusively engaged as agent under the Mahila Pradhan Kshetriya Bachat Yojana or Director of Small Savings.
• Parents or guardians of individuals suffering from mental disability.
• Individuals, above 65 years of age.

Professional Tax Deduction

A company’s or a business’s management is responsible for the deduction of professional tax from their employees’ salaries. They are also liable to forward the said collected amount of professional tax to the relevant government authority or department. Every employee whose professional tax has been deducted has to mention the said deduction in their Income Tax Return Form mandatorily.

Professional Tax Submission

The companies and businesses which come under the ambit of the State Government are liable to pay Professional Tax. Moreover, this tax shall be submitted by them to the State Government’s treasury through Bank Challan. Employers can also pay this tax at other places designated by concerned authorities for this purpose.

Also, employers should know that if they have more than 20 personnel, then their employees’ professional tax payment should be made within 15 days after the preceding month’s end. However, if the employer has less than 20 employees, then the professional tax payment can be done to the authorities on a quarterly basis or to be precise within 15 days from the end of each quarter.

Professional Tax Non-Payment

If you do not pay your professional tax on time and as per schedule, you or the employer shall be subjected to a penalty. Penalty can be as high as 10% of the amount of professional tax. Penalties on late filing of returns also exist and they can go up to Rupees 2,000.

Professional Tax History

Professional Tax is levied on income earned through profession, trade, calling and employment. It is levied by the state governments. It was introduced in 1949 and the right to levy this tax is given to states through the Clause (2) of Article 276 of India’s constitution.

This tax is like Income Tax with the only difference being that the Income Tax is levied by the Central Government and the Professional Tax is levied by the State governments. In the beginning, the maximum professional tax that could have been collected by the state governments was Rupees 250 however this amount was raised to Rupees 2,500 in the 1980s’.

In recent times there is a demand amidst the state governments asking for an increase in the higher limit of the professional tax amount. The state governments are demanding to raise this ceiling amount from Rupees 2,500 to Rupees 7,500. However, this case is still pending and the relevant constitution article amendment has not taken place.

Professional Tax Procedure

Professional Tax deduction as an Income Tax is carried under the Section 16 of the Income Tax Act. For salaried employees and wage earners, the professional tax has to be deducted from the employee/wage earner’s salary by their employers and has to be deposited to the state government. However, when it comes to other individuals, the person who classifies as a professional holds the responsibility for submission of his professional tax to the state government. This tax is mostly collected by the state governments, however sometimes this tax is also collected by the Panchayats or the local bodies of a state. In case, a Panchayat plans to collect Professional Tax, it should be an active entity under the state government’s purview.

Employers/Individual Professionals who come under the ambit of this tax are liable to register themselves as a Professional Tax payer by filling out the relevant form. As aforementioned, different states levy different rates of Professional Tax.

Examples of Professional Tax in Different States

As mentioned, professional tax rates are different in different states.

Maharashtra Professional Tax: The Maharashtra State tax act came into effect in the month of April, 1975. The Professional Tax slabs for salaried and wage earning individuals in this western Indian state are as follows:

• If your salary is less than Rupees 7,500 per month, then you don’t have to pay any Professional Tax in the state of Maharashtra.
• If your salary is greater than Rupees 7,500 per month and less than or equal to Rupees 10,000, then the amount payable in Maharashtra under Professional Tax slab is Rupees 175 per month.
• If your salary is greater than Rupees 10,000 then the amount payable in Maharashtra under Professional Tax slab is Rupees 300 for February and Rupees 200 for all months except February.

The above described Professional Tax slab rates are for salaried individuals and wage earners.  Moreover, the government of Maharashtra has also launched a composition scheme under which any person who is liable to pay Professional Tax in the state can make a one-time payment of Rupees 10,000 to the state government. This payment will be valid for 5 years as it has been made against Rupees 2,500 per annum payment.

You shall also note that the interest charged for late payment of Maharashtra State Professional Tax is 1.25% per month and the state authority is also free to impose a penalty on the defaulter. The penalty can be to the tune of 10% on the total tax due.

Karnataka Professional Tax: Professional Tax under Karnataka state for salaried employees and wage earners follows the below mentioned rules:

• If the monthly salary of a salaried individual or a wage earner is less than Rupees 15,000 then he/she doesn’t have to pay any professional tax to the state of Karnataka.
• However, if the monthly salary of a salaried individual or a wage earner is more than Rupees 15,000 and more, the individual will have to pay Rupees 200 per month to the Karnataka state.

For taxpayers other than salaried individuals and wage earners, Karnataka state has a slab based tax rate for payment of Professional Tax. Those rates are mentioned at this web-page link:

http://pt.kar.nic.in/(S(0h5p1s0ety22gfn5ybnlk5f4))/Main.aspx

Again, for late payment of Professional Tax in Karnataka, 1.25% interest will be charged and a 50% penalty on total amount due can be charged.