Individuals who make a living through employment, the practice of a profession, or business are subject to the direct tax known as professional tax.
Individuals who make a living through employment, a profession, or a business practice are subject to the direct tax known as professional tax. Professionals currently in practice include doctors, teachers, lawyers, chartered accountants, etc.Employers withhold taxes from employees’ monthly paychecks and deposit them with state governments. Other than paid employees, professionals pay it directly to the government. According to the Income Tax Act of 1961, certain professions may be able to deduct the professional tax they paid throughout the fiscal year. This blog will answer whether professional tax is mandatory for business.
Professional Tax Registration
All employers must register as professionals with the IRS within 30 days of hiring new employees. Registration is required for other professions within 30 days of their practice’s commencement.
If the employer has many locations, registration must be requested for each location under the laws of the individual states.
Employers may find it challenging to grasp the registration procedures of all the states where professional taxes are relevant.
Professional Tax Registration Certificate
- Mandatory Registration
Within thirty days of the date on which company operations began, each business entity must receive the Professional Tax Certificate of Enrollment (EC) from the Profession Tax Officer.
- Registration Tax for Professionals
Each employer must pay Rs. 2500.00 in professional tax upon registration.
- Annual Professional Tax Payment
Each year in April, every registered Employer must pay a professional tax of Rs. 2500.00.
Calculating a Professional Tax
Taxation of professionals is a state issue. The method for paying professional tax is not set in stone. Depending on the state of the firm, it can be paid either online or offline. Additionally, the State determines the frequency and format of professional tax return filings.
Further, Article 276 of the Constitution gives the State Government the authority to impose professional taxes, which is a limit of Rs 2,500, over which no one may be subject to professional taxes.
Is Professional Tax Mandatory for Business?
Applicability of Professional Tax
The following individuals/companies are subject to professional tax –
- Employees with Salary/Wage of Rs.15000 /- or more
- Employers (Business Organisations)
- Sole Proprietor
- Partnership Firm (Registered / Unregistered)
- Limited Company (Private / Public)
- Limited Liability Partnership
- Corporations and Corporate Bodies
- Hindu Undivided Family (HUF)
- Trust / Society / Club / Association.
Those exempted from paying professional tax:
The following individuals are exempted from paying professional tax under the Income Tax Act –
- Parents or guardians of kids who have a permanent or mental impairment
- A person who has a permanent physical handicap, such as blindness
- Any individual older than 65 years
- Members of the armed services, including auxiliary forces or reservists, serving in the state, as specified by the Air Force Act of 1950, the Army Act of 1950, and the Navy Act of 1957
- Women only hired as agents under the Mahila Pradhan Kshetriya Bachat Yojana Temporary workers working in the textile sector
Process for Professional Tax Employer Registration
- Registration / Incorporation of a Business
Register the company as a sole proprietorship, partnership, limited liability company, or other legal entity.
- A request to the department of professional taxes
Send the Professional Tax Department your online Employer Registration (Enrolment Certificate) application and any necessary supporting documentation.
- How to Get an Enrolment Certificate (EC)
After submitting your application, send Depart your supporting documentation so that you may get your Certificate of Enrollment (EC)
States and Union Territories That Do Not Pay Professional Tax
Following are some of the Indian states and union territories where no professional tax is applicable:
- Arunachal Pradesh
- Himachal Pradesh
- Uttar Pradesh
- Andaman and Nicobar Islands
- Daman & Diu
- Dadra and Nagar Haveli
- Jammu & Kashmir
Professional Tax Slabs
The slab rates differ from state to state. Currently, the professional tax applies to 16 states in India and is levied on its local authorities.
The chart below exhibits the highest professional tax slab rates in various states of India.
|State||Gross monthly salary (Rs.)||Tax per month (Rs.)|
|Gujarat||12,000 and above||200|
|Maharashtra||10,000 and above||200 (300 for February)|
|Odisha||20,000 and above||200|
|Chhattisgarh||25,000 and above||200|
|Madhya Pradesh||15,000 and above||212|
|Bihar||83,000 and above||208|
|Karnataka||15,000 and above||200|
|Telangana||20,000 and above||200|
|Tamil Nadu||12,500 and above||182|
|Andhra Pradesh||20,000 and above||200|
|West Bengal||40,000 and above||200|
|Assam||25,000 and above||208 (212 for February)|
|Sikkim||40,000 and above||200|
|Meghalaya||41,667 and above||208 (212 for February)|
|Tripura||15,000 and above||208 (212 for February)|
|Kerala||20,834 and above||208|
Consequences of non-compliance with regulations
The real penalty is determined by the professional tax regulations of each State. Businesses that fail to register, pay taxes late, or fail to file returns by the deadline may be subject to fines, late fees, or interest—for instance, the state of Karnataka levies interest of 1.25 per cent per month on any unpaid taxes. West Bengal imposes annual fees of 12 per cent.
If an employer fails to pay the tax while having a “Certificate of registration,” they will be fined. The government charges interest when professional taxes are not paid on time or late. Therefore, estimating your taxes and preparing to prevent fines is wise. If not, the following results may occur:
When a payment is made after the due date, interest is assessed at a rate of 1% to 2% per month.
Additionally, a state may apply a penalty on the total amount owed that ranges from 10% to 50%.
If the information the person gives is false, they will be required to pay a three times greater tax.
The general regulations controlling the professional tax may change sometimes. Therefore, it is advised to consult with professionals in professional taxation before trying a professional tax.
If you require help deciding if professional tax is mandatory for business, Vakilsearch would be pleased to assist you. To ensure that people have reasonable expectations, we give them clarity on the registration procedure. At the lowest possible cost, our experts will guarantee your smooth transaction.