Legal Guide

Everything one should know about Professional tax in India

by Bhavya Choudhary · 4 min read

professional tax in India

Many salaried workers may be familiar with the phrase “professional tax” since it was likely included on their pay stubs or Form 16s. All of them, however, may or may not comprehend what it is and why Professional tax in India appears as a salary deduction on their pay stubs and Form 16s. 

Consequently, the purpose of this blog is to offer a clearer image of what Professional tax in India is, why Professional tax in India is deducted, and if it is solely borne by the salaried class.

Who charges the Professional tax in India and what is it?

  • The word “Professional tax” may be one of those concepts whose literal meaning is obscured by its appellation. Contrary to what the name indicates, it is not a tax imposed just on professionals.
  • Professional tax in India is a tax placed on the income of all professions, crafts, and employment, regardless of kind. It is imposed on workers, company owners (including freelancers), professionals, etc. if their income is over a certain threshold amount.
  • According to Article 246 of the Constitution of India, only Parliament has the authority to pass legislation regarding the Union List, which includes income taxes. The state’s legislative authority is limited to the Concurrent and State lists.
  • However, professional tax in India is a kind of income tax imposed by state governments (not all states in the country chose to levy professional tax). Article 276 of the Constitution of India, which deals with professional tax in Indi, trades, callings, and employment, also grants the State Government the authority to enact legislation concerning professional tax, despite the fact that it is a kind of income tax.
  • Professional taxes in India are deductible under the Income-tax Act of 1961 and may be subtracted from taxable income. Any person who has entered into a work contract and is getting paid through the work contract must pay professional tax in India. 

Commercial tax rate

In various states, the state government imposes different professional taxes. Each state has its own rules and regulations governing the professional tax in that jurisdiction. To collect professional tax, however, each state uses a progressive income-based approach.

In addition, Article 276 of the Constitution, which authorizes the State Government to collect professional tax, imposes a threshold of Rs 2,500 over which no professional tax may be levied.

There are few notable slabs in the nation.

  • Tax brackets for professionals in Karnataka
  • Up to Rs 15,000 in monthly salary/wages, there is no deduction.
  • Rs 15,000 monthly pay or compensation Rs 200 per month
  • Tax brackets for professionals in Andhra Pradesh
  • Up to Rs 15,000 in monthly salary/wages, there is no deduction.
  • Salary/wages between Rs 15,001 and Rs 20,000 per month, Rs 150.
  • Monthly income > Rs 20,000 Rs 200 monthly

Who is liable for the collection and payment of professional tax in India?

The Department of Commercial Tax collects professional taxes in India. It is collected by the separate state departments of business taxation and finally deposited into the municipal corporation’s treasury.

Individuals liable for paying professional taxes in India

  • In the event of workers, an employer is responsible for deducting and remitting professional tax to the State Government, subject to any monetary threshold established by state law.
  • An employer (corporations, partnerships, sole proprietorships, etc.) who is also engaged in a trade or profession is obligated to pay professional tax in India on his trade or profession, subject to the monetary threshold, if any, established by the individual state’s law.
  • In such a circumstance, the employer must register and get both a professional tax registration certificate and a professional tax enrollment certificate in order to pay professional tax in India on his trade or profession and deduct the tax from his workers’ wages. In addition, a separate registration may be necessary for each office, depending on the laws of each state.
  • Persons who operate a freelance company without any workers are also obliged to register themselves if the local state’s statute specifies a monetary criterion.
  • Nonetheless, a professional tax in India levy is susceptible to exemptions granted by the individual state to certain groups. The Karnataka Professional tax exemptions include, among others, parents or guardians of individuals with mental retardation and blind individuals.

How does one pay their professional tax in India? Is a tax return required?

Again, this is a state-specific inquiry. In general, though, professional taxes in India may be paid either online or offline. In addition, depending on state regulations, periodic professional tax returns may also be required.

Consequences for violating professional taxation rules in India

As soon as professional tax law becomes relevant, all of these states may impose a penalty for failure to register. The exact amount of penalty or punitive interest may vary depending on each state’s legislation.

In addition, there are penalties for not making the payment by the due date and for not filing the return by the required deadline.

In the state of Maharashtra, for instance, a penalty of Rs 5 per day is applied for late registration, Interest @ 1.25 percent per month for late payment, a penalty of 10 percent of the tax amount for late/nonpayment of professional tax, and Rs 1000 to Rs 2000 for late submission of the return. To know more about it, consult a lawyer online

Conclusion

Professional Tax in India, unlike Income Tax, is a direct tax administered by the states and not the federal government. Since Union territories are under the jurisdiction of the Central Government, they are exempt from the professional tax in India.

Therefore, none of the nine union areas are required to contribute. In addition, the majority of these places are rather tiny and contribute little to the economy, thus they are exempt from this tax. To know more, one must consult a lawyer online. 

Professional tax is compulsory. However, the amount that you will have to pay towards your professional tax will depend on the state you reside in. To know how much tax is required to be paid and to ensure payment of taxes on time, Consult a tax lawyer.

Bhavya Choudhary

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Bhavya Choudhary

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