Professional Tax is a direct tax levied on any person who receives a salary or fees as a professional. There are serious penalties if you don’t pay this tax before the due date.
Many salaried employees are likely to be familiar with the term ‘professional tax,’ as it appears on their payslips or Form 16 every month. However, most of them may be unaware of it or do not know why a reduction from their salary income is reported on their payslips or Form 16 whenever they receive their salary.
Therefore, this essay aims to give readers a clearer understanding of what professional tax is, who regulates it, and whether or not it affects only the salaried class. This article will cover everything you need to know about Professional Tax. Professional tax differs in every state, and no deduction is available below the tax in a few areas. Let us learn more below.
What is Professional Tax?
The tax imposed and collected by the State governments of India is known as the professional tax. This is an indirect tax. Anyone who receives a salary or practises a profession, such as a lawyer, doctor, auditor, or accountant, must pay this professional fee. The techniques and rates for collecting taxes vary from state to state. In India, professional tax is collected every month.
Professional tax is a tax on all professions, trades, and employment that is assessed depending on their respective incomes. It is imposed on workers and anybody operating a business, including professionals and freelancers. It is subject to any income that exceeds the applicable monetary threshold.
Who Levies Professional Tax?
According to Article 246 of the Indian Constitution, only Parliament has the sole authority to pass laws regarding the Union List, which includes income taxes. The Concurrent and State list is the sole list for which the state has legislative jurisdiction.
However, professional tax is a type of income tax levied by the state government (not all states in the country choose to charge professional tax). In accordance with Article 276 of the Indian Constitution, which addresses taxes on professions, trades, callings, and employment, the state government is also permitted to enact professional tax laws, regardless of whether it is an income tax.
Which States Levy Professional Tax?
Not all countries impose this tax. Gujarat, Punjab, Uttar Pradesh, Bihar, Andhra Pradesh, Telangana, Western Bengal, Maharashtra, Karnataka, and Tamil Nadu are among the states that levy professional taxes. All people who engage in various occupations, including business owners, employees, and traders, are subject to this tax.
In Gujarat, the professional tax is levied every quarter. If the firm has fewer than 20 employees, the company must pay the Professional tax in less than fifteen days after the month ends. However, if the number of employees exceeds 20, the corporation may be required to pay a professional tax quarterly. Once more, it must be submitted within fifteen days of the previous quarter’s end.
What is the Rate of Professional Tax?
Each state has a particular professional tax that the state government imposes. The professional tax of each state is governed by its unique rules and regulations. But to collect professional tax, every state uses a slab system depending on income.
In addition, Article 276 of the Constitution, which gives the government of the State the authority to impose a professional tax, specifies a ₹2,500 maximum limit over which no one may be subjected to a professional tax.
What Are the Documents Required for Registration of Professional Tax?
(i) Address proof
(ii) Certificate of incorporation
(iii) Number of working employees
(iv) Salary details
(v) Records of accounts
Who is Responsible for Collecting Professional Tax?
The Commercial Tax Department is in charge of collecting professional taxes. It is collected by the commercial tax departments of the individual states and ends up in the municipal corporation’s fund.
Who is Responsible for Paying Professional Tax?
(i) In the case of employees, an employer is a person who is responsible for deducting and paying professional tax to the State Government, according to any monetary threshold set by the relevant state’s legislation.
(ii) Employers (corporations, partnership firms, sole proprietorships, etc.), who are also people engaging in trade or profession, are also obligated to pay professional tax on their trade or profession, according to the monetary threshold, if any specified by relevant state legislation.
- In this situation, the employer must register and get both a professional tax registration certificate and a professional tax enrolment certificate in order to be permitted to pay professional tax on their trade or profession and deduct the tax from his employees’ salaries. Additionally, depending on the laws of each state, separate registration may be necessary for each office.
(iii) Individuals who run a freelancing business without employing any other person are also required to register according to any monetary threshold set by the legislation of the particular state.
(iv) A professional tax levy, however, is subject to the exemptions granted to specific groups of people by the relevant state. For instance, Karnataka Professional Tax is not levied on the parents or guardians of anyone who has a mental disability or who is blind.
How Can You Calculate Professional Tax?
The method for calculating Professional Tax would vary from state to state. Each and every state follows their own unique calculation method according to regulations.
The Professional Tax is charged based on the income slabs levied by the government.
You can follow the following steps in order to calculate Professional Tax
- Step 1: Find out if the Professional Tax is imposed in your state and area
- Step 2: If you qualify for the tax, calculate the amount of tax based on your income.
- Step 3: Identify the tax slab applicable to your income.
What Are the Consequences of Violating Professional Tax Regulation?
Even though the precise amount of the penalty or penal interest may vary depending on the legislation of the relevant state, all states may impose a penalty for failure to register once professional tax law becomes applicable.
Additionally, there are fines for failing to submit the return within the time limit and failing to make the payment by the due date.
Understanding taxes, especially Professional Tax, can be challenging for people who do not have a legal background. That is why many people seek the help of professionals when dealing with taxes. Our team at Vakilsearch is an expert in tax registration and submission. We are here to help you and make your tax filing process more accessible with the assistance of our experienced legal team.