Many salaried employees might be very well aware of the term
‘professional tax’ as it would have been mentioned in the payslips/Form
16 issued to them. But all of them may or may not understand what it is
and why is it appearing in their payslips/Form 16 as a deduction from
their salary income. Hence, this article is an attempt to provide a
better picture of what is ‘Professional tax’ and why is it deducted and
is it only salaried class who are bearing it.
What is Professional tax and who levies it?
The nomenclature ‘Professional tax’ could be one of those terms which
do not completely convey the real meaning of the term. Unlike the name
suggests, it is just not the tax levied only on professionals. It is a
tax on all kinds of professions, trades, and employment and levied based
on the income of such profession, trade and employment. It is levied on
employees, a person carrying on the business including freelancers,
professionals, etc., subject to income exceeding the monetary threshold
if any.
As per Article 246 of the Constitution of India, only Parliament has
the exclusive power to make laws with respect to the Union List which
includes taxes on income. The state has the power to make laws only with
respect to the Concurrent and State list.
However, professional tax though is a kind of tax on income levied by the State Government (not all states in the country chose to levy
professional tax). The State Government is also empowered to make laws
with respect to professional tax though being a tax on income under
Article 276 of the Constitution of India which deals with tax on
professions, trades, callings and employment.
It may be noted that professional tax is a deductible amount for the
purpose of the Income-tax Act, 1961 and can be deducted from taxable income.
Professional tax rate
Professional tax being levied by the State Government is different
in different states. Every state has its own laws and regulations to
govern the professional tax of that particular state. However, all the
states do follow a slab system based on the income to levy professional
tax.
Further, Article 276 of the Constitution which empowers the State
Government to levy professional tax also has provided for a maximum cap
of Rs 2,500 beyond which professional tax cannot be charged on any
person.
Few illustrative slabs in the country
- Professional tax rate slabs in Karnataka
Monthly salary/wage upto Rs 15,000 | |
Monthly salary/wage > Rs 15,000 | Rs 200 per month |
- Professional tax rate slabs in Andhra Pradesh
| Monthly salary/wage upto Rs 15,000 | |
| Monthly salary/wage between Rs 15,001 – Rs 20,000 | |
| Monthly salary/wage > Rs 20,000 | |
Who is responsible to collect and pay professional tax?
Professional tax is collected by the Commercial Tax Department. The
commercial tax department of the respective states collects it which
ultimately reaches the fund of the municipal corporation.
Persons responsible to pay professional tax
In the case of employees, an employer is a person responsible to deduct
and pay professional tax to the State Government subject to the monetary
threshold if any provided by the respective State’s legislation. An employer (corporates, partnership firms,
sole proprietorship etc) also being a person carrying on
trade/profession is also required to pay professional tax on his
trade/profession again subject to the monetary threshold if any provided
by 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 enrolment certificate to be able to deduct the tax
from his employees and pay. Further, separate registration may be
required for each office depending on the respective State’s
legislation. Persons who are carrying on freelancing business
without any employees are also required to register themselves subject
to the monetary threshold if any, provided by the respective State’s
legislation.
However, a professional tax levy is subject to the
exemption provided by the respective State to certain categories. For
example, parents or guardians of any person who is suffering from mental
retardation, blind persons are exempted among others from the levy of
Karnataka Professional tax. What is the procedure to pay professional tax? Is any return to be filed?
This is again a State-specific query. However, in general, a
professional tax may be paid either online/offline. Further, depending
on the State’s requirement, professional tax returns also need to be
filed at specified intervals.
Consequences of violation of professional tax regulation
While the actual amount of penalty or penal interest may depend on
the respective State’s legislation, a penalty may be levied by all such
states for not registering once professional tax legislation becomes
applicable.
Further, there are also penalties for not making the payment within
the due date and also failing to file the return within the specified
due date.
For example: In the State of Maharashtra Rs 5/day is imposed as a
penalty for delay in registration, Interest @ 1.25% per month of delay
in payment, a penalty of 10% of the amount of tax in case of delay/non-payment of professional tax, Rs 1000 – Rs 2000 penalty for delay in
filing the return
I am a freelance professional. Am I liable to pay Professional Tax?
Yes, Professional Tax is applicable even for professionals, if income
exceeds the specified limit as per your Professional Tax Laws
applicable in the state where you live