Professional Tax in India: Calculations, Rate, Exemptions, Penalties

If you’re a salaried employee, you’ve probably come across the term ‘professional tax’ on your payslips or Form 16. But do you really know what it is and why it’s deducted from your salary? Let’s shed some light on the subject and explore whether it only affects the salaried class.

What Is Professional Tax?

Professional tax is a tax imposed on various professions, trades, and employment based on their income levels. It applies to employees, freelancers, professionals, and business owners whose income exceeds a specific threshold set by each state.

This tax is directly deducted from your gross salary by your employer, as it is levied and collected by the state government. The maximum amount charged is Rs 2,500, but the specific rates and slabs can vary from state to state.

Why Does Professional Tax Differ Across States?

Professional tax differs from state to state because it is governed by each state’s individual laws and regulations. However, all states generally follow a slab system based on income levels to levy this tax. The Constitution (Article 276) empowers state governments to collect professional tax, but it also sets a maximum cap of Rs 2,500 that cannot be exceeded.

Professional Tax Rates in Key States of India

How to Calculate Professional Tax on Salary?

Your professional tax is calculated monthly based on your gross salary for that particular month. The tax is levied on the portion of your income after deducting items like EPF contributions, gratuity, leave deductions, or any past loans taken from your employer. This means that as your gross salary fluctuates, your professional tax amount will also vary accordingly.

Example:
If you are working in Maharashtra and earning Rs. 25,000 a month, a professional tax will be deducted of Rs. 200 per month for 11 months and Rs. 300 for the 12th month.

Who Is Responsible for Paying Professional Taxes?

In the case of employees, the employer is responsible for deducting and paying professional tax to the state government, provided the employee’s income exceeds the specified threshold. Additionally, employers themselves, whether corporate entities, partnerships, or sole proprietorships, also need to pay professional tax on their businesses.

Freelancers who have no employees are also required to register and pay professional tax if their income exceeds the specified threshold. However, there are exemptions provided by some states for certain categories, such as parents or guardians of individuals with mental retardation.

Who Is Exempt from Professional Tax Deduction?

Several categories of individuals are exempt from a professional tax deduction, including:

• Members of the armed forces (army, air force, navy, and auxiliary/reserve members)
• Defence-related factory workers
• Badli workers in the textile industry
• Individuals with permanent physical disabilities like blindness
• Parents/guardians of people with physical or mental disabilities
• Women under the MPKBY small savings scheme, and individuals above the age of 65.

How Is Professional Tax Collected?

The Commercial Tax Department of each state is responsible for collecting professional tax, and the funds collected go to the respective municipal corporations.

How to Pay Professional Tax Online?

Making professional tax payments is convenient and can often be done online. Each state has its own official website for e-payment of professional tax.

To pay online, follow these general steps:

• Locate the official state website for professional tax e-payment.
• Select the relevant option for self-employed professionals or registered employers.
• Enter your Professional Tax Registration Number and company/firm details (if applicable).
• Choose the payment period (monthly, annually, or as per departmental demand).
• Specify the year and month for which you are paying tax.
• Enter the tax amount and any applicable penalty.
• Provide bank details for payment and your mobile number for verification.
• Submit the payment and save the payment challan for future reference.

What Happens if Professional Tax Is Not Paid?

Failure to pay professional tax or register for it can result in penalties, which vary depending on the state’s legislation. Late registration can incur a daily penalty, while late payment may be subject to monthly interest. Non-payment or delayed payment of professional tax may also lead to additional penalties, making timely compliance crucial to avoid financial repercussions.

For example, in Maharashtra, the penalty for late registration is Rs 5 per day, with 1.25% monthly interest on late payments and a 10% penalty on the tax amount for non-payment or delay. Late return submissions may also attract a penalty of Rs. 1,000-2,000. Staying informed and fulfilling your professional tax obligations is essential to ensure a smooth and compliant financial journey.

Frequently Asked Questions

In Which States Is Professional Tax Not Applicable?

Andaman and Nicobar Islands, Arunachal Pradesh, Chandigarh, Chhattisgarh, Dadra and Nagar Haveli, Daman and Diu, Delhi, Goa, Haryana, Himachal Pradesh, Jammu and Kashmir (prior to the reorganization), Ladakh (prior to the reorganization), Lakshadweep, Rajasthan, and Uttar Pradesh

In Which States Is Professional Tax Applicable?

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

Is Professional Tax Deducted Every Month?

Yes, professional tax is deducted every month.

Is Professional Tax Refundable?

No, once professional tax is deducted, it is not eligible for a refund.

Is Professional Tax Applicable for Freelancers?

Yes, professional tax applies to freelancers as well.

How Can I Pay Professional Taxes?

Professional tax is a state-levied tax, not imposed by the central government. The mode of payment may vary from State to State.

In general, you can pay professional tax through both online and offline modes. Visit the official website of your relevant state for professional tax payments. For instance, if you reside in West Bengal, you need to log in to their official website: http://wbprofessiontax.gov.in/

Is Professional Tax Mandatory?

Yes, professional tax is mandatory for salaried individuals, i.e., those who receive a regular salary for their work.

Is Professional Tax Taxable in Income Tax?

Professional tax is considered a deductible amount for the purpose of the Income Tax Act of 1961 and can be deducted from taxable income.