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In certain states in India, the salary slip of a salaried tax payer features a deduction names ‘professional tax’. Typically, this deduction in lieu of professional tax is mentioned below the HRA, allowance and gross salary in the slip. While the name might suggest that you need to be a professional such as a lawyer or doctor to pay professional tax, that is not the case.
Professional tax in India is applicable to all individuals earning in the states where the tax is applicable. Currently only a few states such as West Bengal, Maharashtra, Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu require earning individuals to pay professional tax to the state. Whereas, other states in India do not require payment of this type of income tax.
In the following sections, we will discuss in detail what professional tax is, the current professional tax slab rates and its applicability in India.
What is Professional Tax?
Professional tax is the type of income tax levied by the state government on salaried individuals who earn a living in India. So, in effect professional tax must be paid by every single individual who earns and not just salaried professionals like doctors, lawyers or chartered accountants. The amount collected as professional tax in India and its calculation can differ from one state to another. However, there is a limit of Rs. 2500 per year on the professional tax that can be levied anywhere in India.
Professional tax is calculated based on slab rates that vary from one state to another. Similar to income tax slab rates, state government’s professional tax is also progressive in nature i.e. the rate of tax payable increases with the income of the tax payer. In states where professional tax is applicable, the monthly salary slip of the employee features a deduction for professional tax in addition to any other deduction that may be applicable for the period.
Which States Impose Professional Tax In India?
Like every other direct tax formula, professional tax has its own formula and when it comes to the slab rate, it is set by the union territory or an individual state. According to the Article 246 of the constitution, only the Parliament of India holds the power to frame laws for subjects on the union list which also includes tax on income.
Currently, not all states in India require individuals to pay professional tax. The following is the list of states when payment of professional tax is currently mandatory:
- Andhra Pradesh
- Karnataka
- Kerala
- Maharashtra
- Tamil Nadu
- Telangana
- West Bengal
Currently, not all states in India require individuals to pay professional tax. The following is the list of states when payment of professional tax is currently mandatory:
- Andhra Pradesh
- Karnataka
- Kerala
- Maharashtra
- Tamil Nadu
- Telangana
- West Bengal
Professional tax is applicable to the below mentioned entities and individuals residing in the Indian states where this tax is levied:
1. Medical professionals such as dentists, medical consultants, and doctors
2. Management and tax consultants
3. Chartered accountants
4. Associations and clubs
5. Companies and firms
6. HUF
Professional tax is applicable to the below mentioned entities and individuals residing in the Indian states where this tax is levied:
1. Medical professionals such as dentists, medical consultants, and doctors
2. Management and tax consultants
3. Chartered accountants
4. Associations and clubs
5. Companies and firms
6. HUF
7. LLPs
8. CS
9. Architects and engineers
10. Contractors
11. Insurance agents
12. Societies
13 Legal practitioners
The above list is for illustration only and may be subject to periodic change as per applicable state professional tax rules.
Who Collects Professional Tax?
Professional tax is collected by the employers from their employees’ monthly salaries. It is then paid to the applicable state government. Penalties can be imposed in case of failure to collect and pay professional tax. In case you are self-employed, you are liable to pay professional tax to the state by yourself.
You will need to fill out the prescribed form, a registration number will be issued to you by the state where you need to pay the tax. Payment of professional tax can be done under the registration number at the banks. It is also worth noting that, in some states, the government also provides rebates on taxes if it is paid in a lump sum for a few years together, so it is worth enquiring about the professional tax rules in the state.
Exemption in Professional Tax
The below-mentioned individuals are exempt from paying the professional tax.
- Individuals who run education institutes and teach classes up to the twelfth standard.
- Individuals in the CPMF (Central Para Military Force).
- An individual who has one child and further, has undergone a sterilization operation.
- A handicapped individual with at least 40 percent disability. However, the relevant certificate needs to be submitted.
- Individuals with a permit for a single taxi or a three-wheeler to carry goods.
- Deaf, mute, and blind individuals earning a salary.
- Combatant and civilian non-combatant members who are a part of the armed forces. However, the armed forces are governed by the Army act.
- Individuals who run education institutes and teach classes up to the twelfth standard.
- Individuals in the CPMF (Central Para Military Force).
- An individual who has one child and further, has undergone a sterilization operation.
- A handicapped individual with at least 40 percent disability. However, the relevant certificate needs to be submitted.
- Individuals with a permit for a single taxi or a three-wheeler to carry goods.
- Deaf, mute, and blind individuals earning a salary.
- Combatant and civilian non-combatant members who are a part of the armed forces. However, the armed forces are governed by the Army act.
FAQs
1. Why is professional tax different for union territories and states in India?
Professional tax is levied by each of the state government and differs because of each of the states having their own tax slabs. Hence, professional tax differs from one union territory or state to another.
2. Why does professional tax not hold applicability for union territories?
Union territories are generally smaller regions governed by the central government. Since these regions are comparatively smaller, they tend to generate a lower revenue and are therefore, exempt from paying professional tax.
3. What is the maximum professional tax in India?
Currently, there is a maximum cap of Rs. 2,500 annually on professional tax in India irrespective of where your earn your income.
4. Is it compulsory to pay professional tax?
If you have earnings in a state where professional tax is applicable beyond the applicable tax exemption limit, it is mandatory for you to pay this tax.
5. If I am a freelancer, is professional tax applicable for me?
Yes, professional tax is applicable for freelancers. Thus, even if you are a freelancer and the income you generate is more than the prescribed minimum limit for the state you reside in, you will have to pay professional tax.
Sources:
https://en.wikipedia.org/wiki/Professional_Tax
https://www.bajajfinserv.in/insights/what-is-professional-tax-and-how-is-it-calculated
https://www.kotaksecurities.com/ksweb/income-tax/professional-tax-in-india
https://www.simpliance.in/professional-tax
https://www.charteredclub.com/professional-tax/
https://cleartax.in/s/professional-tax
ARN No: Aug22/Bg/31
