What is Professional tax and who levies it?
Professional tax 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.
Unlike the name suggests, it is just not the tax levied only on professionals. Professional tax is a tax on all kinds of professions, trades, and employment and is 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.
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
Different states have different professional taxes that are imposed by the state government. Each state has its own set of rules and laws that control the professional tax in that state. To levy professional tax, all states do, however, adhere to a slab system based on income.
Additionaly, 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 to any person.
Who is responsible to pay professional taxes?
- In 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, or blind persons are exempted among others from the levy of Karnataka Professional tax
Professional tax is a direct tax levied by the state rather than the federal government. It is a tax levied by the state. As a result, the form of payment may differ from one state to the next. Professional tax, on the other hand, can be paid both online and offline. To pay professional tax, you must go to the official website of the relevant state.
Exemptions in professional tax
- Even though everyone who earns a regular income (salary) is expected to pay the professional tax, some people are exempt. As a result, if you fall into one of the categories listed below, you are exempt from paying professional tax.
- Member of Force (Governed by Army, Air Force, Navy Act)
- An individual suffering from mental or physical disability. Disability can be blindness, deafness, etc.
- Parent of a child suffering from a disability.
- Charitable hospitals are present in places that come below the taluk level.
- Badli workers (temporary workers that are employed in a factory).
- Individual running an educational institute.
- A foreign individual who has been employed by the relevant state.
- Any individual above 65 years
- Women who are solely engaged as agents under the Government’s Mahila Pradhan Kshetriya Bachat Yojana
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.
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