Professional TaxTaxation

Easy Guide to Understanding Professional Tax in India

Professional tax, like income tax, is levied on the money made through trade or occupation, except that it is levied by the State government. While professional tax rates are much lower than the income tax, it is essential to register and pay them duly.

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The various state governments in India levy a tax on income earned via trade, and it’s called the professional tax. Income earned via commerce or remittance by an employer is liable for this form of taxation. As a result, professional tax registration and compliance is an integral part of tax management and planning. 

What Is Professional Tax?

Professional Tax is a tax levied on the income generated through trade, callings, a profession, or any employment. The most significant difference between income tax and professional tax is the body that collects them. While the Central government handles income tax collection, state governments regulate and collect professional tax from residents. When the professional tax was initially introduced, the threshold for the collection was a mere ₹250. Over the years, the government has raised the overall limit to ₹2,500. 

Therefore, the maximum amount that an individual will be liable to pay as professional tax is ₹2,500. The slab for assessment depends mainly on the professional’s gross income. The employer deducts the required amount from the employee’s salary every month.

State governments can make laws regarding the management and collection of professional tax in India as per Article 276 of the Constitution. Article 276 contains rules and regulations regarding tax levied on calling, employment, trades, and professions. According to the Income Tax Act, 1961, professional tax serves as a deductible tax levied on an individual’s taxable income.

What States in India Require Professional Tax Registration?

Individuals in the following states have to complete professional tax registration and compliance in India:

  1. Andhra Pradesh
  2. Assam
  3. Chhattisgarh
  4. Gujarat
  5. Karnataka
  6. Kerala
  7. Madhya Pradesh
  8. Maharashtra
  9. Meghalaya
  10. Orissa
  11. Tamil Nadu
  12. Tripura
  13. West Bengal

The employer has to deduct the required amount as professional tax and deposit it with the concerned state government. Since professional tax is managed by the state governments, there is a difference in the rate of taxation. Each state has its slab according to which it computes and collects professional tax from employees. Additionally, not all Union Territories and states in India collect professional tax, as seen above. 

GET PROFESSIONAL TAX REGISTRATION

Payment of professional tax occurs through twelve equal monthly instalments. In case an individual has multiple sources of income from different sectors, they will be liable for a separate tax.

Let us now take a look at the rates levied by some of the states in India:

Sl No

State

Income Range

Tax

1 Karnataka  Up to ₹15,000 No tax
Greater than ₹15,000 ₹200/month
2 Andhra Pradesh Up to ₹15,000 No tax
Between ₹15,000 and ₹20,000  ₹150/month
Greater than ₹20,000 ₹200/month
3 Gujarat Up to ₹5,999 No tax
Between ₹6,000 and ₹8,999 ₹80
Between ₹9,000 and ₹11,999 ₹150
Greater than ₹12,000 ₹200
4

Kerala

(Half-yearly income slabs and tax payment scheme)

Up to ₹11,999 No tax
Between ₹12,000 and ₹17,999 ₹120
Between ₹18,000 and ₹29,999 ₹180
Between ₹30,000 and ₹44,999 ₹300
Between ₹45,000 and ₹59,999 ₹450
Between ₹60,000 and ₹74,999 ₹600
Between ₹75,000 and ₹99,999 ₹750
Between 1,00,000 and ₹1,24,999 ₹1,000
Greater than ₹1,25,000 ₹1,250
5 Maharashtra Up to ₹7,500 No tax for males
Up to ₹10,000 No tax for females
Between ₹7,500 and ₹10,000 ₹175 for males
Greater than ₹10,000 ₹200 for 11 months and ₹300 for 12th
6 Telangana Up to ₹15,000 No tax
Between ₹15,0001 and ₹20,000 ₹150
Greater than ₹20,000 ₹200
Up to 5 years for professionals No tax
After five years  ₹2,500 per annum
7 West Bengal Up to ₹10,000 No tax
Between ₹10,001 and ₹15,000 ₹110
Between ₹15,001 and ₹25,000 ₹130
Between ₹25,001 and ₹40,000 ₹150
Greater than ₹40,000 ₹200

Professional Tax Registration Applicability

In India, the following individuals and entities have to complete the registration process.

  • Companies Firms
  • Limited liability partnerships Corporations
  • Societies Hindu united families
  • Associations Clubs
  • Legal practitioners Contractors
  • Architects Engineers
  • Insurance agents Chartered accountants
  • Company secretaries Surveyors
  • Tax consultants Management professionals 
  • Medical professionals 

However, the following individuals are exempt from professional tax registration and compliance.

  1. Ex-servicemen
  2. Central Para Military Force members
  3. People running schools that teach up to class 12
  4. Handicaps who have at least 40% disability (must provide a certificate for the same) and deaf, blind, and dumb individuals earning a salary
  5. Individuals who use a single three-wheeler or taxi to transport goods
  6. Civilians and non-civilians who serve the armed forces
  7. Foreign technicians employed by state governments

Collection of Professional Tax

The Commercial Tax Department is responsible for computing and collecting professional tax in India. The funds collected by the various State Commercial Tax Departments end up with the municipal corporation. The Commercial Tax Department relies on employers to compute and collect the required professional tax and hand it over to them. To do so, companies must complete the registration process and obtain an enrolment certificate for the same. 

Depending on state legislation, different offices may require separate registration. Freelancers must also complete the tax registration procedure to stay compliant. Most states allow individuals to pay the due amount either via online or offline means. 

Additionally, individuals may have to file a professional tax return at specified intervals depending on the state’s legislation. Certain states allow individuals to pay their tax dues via a composition scheme. For instance, professionals in Maharashtra can pay 10,000 and clear all liabilities from paying professional tax for five years.

Professional Tax Registration Process

Employers handle the registration procedure in most cases. Companies apply for professional tax registration with the state tax department within thirty days of hiring someone new. In case a business has more than one office, applications must be made separately to the concerned authorities. 

If you are an employer or a professional looking to register for tax, you can do it easily through Vakilsearch. Our experts will take care of the entire process for you.

A delay in completing the registration procedure can lead to fines and penalties. Governments will charge a late fee of 5 per day for every day of delay in most cases. Non-payment of or delay in the actual penalty will lead to a penalty of 10% on the amount due. 

Additionally, the late filing of returns will attract a late fee of 300. Different states have different penalties and late fees for non-compliance. Hence, companies need to ensure they always complete professional tax registration and maintain compliance.

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