Professional tax – All about Professional tax (Meaning, rates, applicability)

What is Professional Tax?

A professional tax is a direct tax paid by any individual who is drawing a regular income for providing their professional service. It can be in the form of a salary or as professional fees for the services you give to people. A salaried individual as well as a doctor or a lawyer who count as self employed individuals are required to pay a professional tax.

All professionals are required to pay professional tax to their respective State governments based on their income. Note that, the percentage of tax deduction differs from State to State which means that your final tax amount will differ due to this.

Professional Tax in India

In case of a salaried employee, you’ll be able to see your professional tax deduction in your salary slip. If not then you can simply enquire with the HR personnel in your company. For all salaried professionals, their respective employer will deduct a small amount on a monthly basis from their income in addition to other regular deductions. This amount is paid as the professional tax by your employer on your behalf to the State government. 

In case you are self employed for example, a lawyer, doctor, C.A or any other practicing professional then you have to pay professional tax to the State government of the place where you practice. 

Who Pays Professional Tax?

Professional tax needs to be paid by any individual earning an income in India in the form of either a salary, or by providing their professional services to people. 

For Salaried – If you are salaried employed, then your employer will take care of paying your professional tax to the State government on your behalf by making the tax deduction from your salary as per the slab rate. They will also be responsible for registering and providing you with the professional tax registration certificates. 

For Self-Employed – In case you are self employed say, for example, you are a professional with your own practice like a lawyer, a doctor or are a freelancer with no fixed employer, then you need to pay your professional tax on your own. The amount will be deducted as per the slab rate depending on the State government’s rules.

Who Collects Professional Tax?

Your employer collects and pays the professional tax on your behalf to the State government, after deducting it from your monthly salary. In case they fail to do so, they can face a penalty for not collecting/paying the professional tax. 

As far as self employed professionals are concerned, you need to pay professional tax yourself. You can easily register yourself by applying through a form. After the form is submitted, a registration number will be issued to you which will then be used in making the tax payments at the banks. In some States, the government provides a rebate on the professional tax amount if it is paid in the form of a lump sum for a few years together. Please read the State rules once carefully before depositing the tax amount to get the most benefit out of it.

Why is Professional Tax Different for Different People?

Professional tax is different for different people because it is levied by individual State governments based on different slab rates. In fact, there are some States and Union Territories in India that do not impose professional tax at all. 

The annual professional tax amount is calculated and divided by 12 to make it into 12 equal instalments for individuals to pay every month. February, is an exception where the tax is higher than the other months.

Note that in some special situations where the sources of income fall under different sectors, an individual is also liable to pay a separate tax. For example, in some States, an individual running a transport business might be liable to pay a professional tax of about Rs. 50 annually for every vehicle he owns. However, this may also be subject to a cap of Rs. 1,000 per annum.

Who is Liable for Professional Tax?

Profession tax is applicable on the following persons:

1. All Salaried Individuals
2. Company/Firm/Co-operative Society/Clubs/Association of persons or a body of individuals, whether incorporated or not
3. Contractors
4. Chartered Accountants
5. Hindu Undivided Family (HUF)
6. Legal practitioners such as Solicitors
7. Architects
8. Insurance agents
9. Management consultants 
10. Medical representatives such as doctors, medical consultants, and dentists
11. Surveyors
12. Tax consultants

What is the Professional Tax Limit?

Despite the fact that the tax rates vary from one State to another depending on an individual’s income, the professional tax limit is set at Rs. 2,500.  

States and Union Territories that Collect Professional Tax

Here’s a list of some of the Indian States and Union Territories where professional tax is applicable:

1. Andhra Pradesh
2. Assam
3. Bihar
4. Chhattisgarh
5. Gujarat
6. Jharkhand
7. Karnataka
8. Kerala
9. Madhya Pradesh
10. Maharashtra
11. Manipur
12. Meghalaya
13. Mizoram
14. Nagaland
15. Odisha
16. Puducherry
17. Sikkim
18. Tamil Nadu
19. Telangana
20. Tripura
21. West Bengal

Professional Tax Slabs in Various States

Every state has its own unique slab and rules for professional taxes. Here is a list of the slabs for some States and Union Territories.

Professional Tax in Maharashtra

Professional Tax in Karnataka

Professional Tax in West Bengal

Professional Tax in Madhya Pradesh

Professional Tax in Tamil Nadu

Professional Tax in Andhra Pradesh

Professional Tax in Gujarat

Professional Tax in Odisha

Exemption in Professional Tax

Here’s a list of individuals that are exempt from paying professional tax:

1. Individuals over 65 years of age.
2. Individuals in Central Para Military Force (CPMF).
3. Civilian non-combatant and combatant members who are part of the Armed Forces. Remember, the Army Act must govern the Armed Forces.
4. Any ex-serviceman who comes under SI No.1 (Schedule).
5. Deaf, dumb, and blind individuals who are earn a salary.
6. An individual who has one child and has undergone a sterilization operation. However, the relevant documents must be submitted.
7. Any handicapped individual who has at least a 40% disability. However, the relevant certificate must be submitted.
8. Individuals who have a permit for a single three-wheeler or a single taxi to carry goods.
9. Foreign technicians who have been employed by the State.
10. Individuals who run educational institutions that teach classes up to 12th standard.
11. All philanthropic and charitable hospitals that are present in places that come under taluk level.

What Happens if you Don’t Pay Professional Tax?

If you don’t pay professional tax to the State government on time or not at all, then a penalty will be charged. Depending on the State you are in, the actual amount of penalty may depend on the respective State’s legislation, but a penalty will surely be imposed by all States for not registering if you’re eligible. For late payment, an interest rate between 1% to 2% per month is charged. A State can also charge a penalty starting from 10% but not more than 50% on the total amount due. 

In fact, as per Section 5(6) of the Profession Tax Act, the penalty imposed in case you provide wrong information when applying for an enrolment certificate or a registration certificate will be 3 times the amount of your total tax obligation. Make sure that you check the overall rules of the professional tax laws in your State, from time to time to stay aware of any alterations and file your documents properly after thorough rechecking.

In which States is Professional Tax not applicable?

Here’s a list of some of the Indian States and Union Territories where this tax is not applicable:

1. Andaman and Nicobar Islands
2. Arunachal Pradesh
3. Chandigarh
4. Dadra and Nagar Haveli
5. Daman & Diu
6. Delhi
7. Goa
8. Himachal Pradesh
9. Haryana
10. Jammu & Kashmir
11. Lakshadweep
12. Punjab
13. Rajasthan
14. Uttar Pradesh
15. Uttarakhand

When is Professional Tax Deducted?

For a salaried individual, your professional tax will be deducted by your employer on a monthly basis  from your gross salary depending on your tax slab rate. This amount is further paid to the State government. As far as self-employed professionals like doctors, lawyers or even business owners are concerned, you need to make these tax payments as per your category slab rate as per the State’s rules and legislation. By State we mean where you work or run your business out of. 

FAQs

Ques 1. Is it compulsory to pay professional tax?

Ans 1. Yes, it is compulsory to pay professional tax in India if you’re earning a regular income either through a salary or through setting up your own practice.

Ques 2. Can professional tax be paid online?

Ans 2. Yes, professional tax can conveniently  be paid online on the professional tax website of the respective state. It needs to be paid by the last day of the month.  In case you are paying tax monthly, E-filing is mandatory. You may note that the necessary steps to make the payment for professional tax for each state is more or less similar.