How Professional Tax is Calculated

Professional tax in India: How professional tax is calculated

Professional tax or employment tax is a tax imposed by an Indian state. Each state government of India levies a professional tax on its resident based on his/her employment.

It is a deduction that is made from the gross income before computing the tax. Professional tax can be termed as a benevolent and beneficial tax as it is not a part of the direct tax on your income.

State Governments charge the professional tax based on certain criteria. Professional tax is deducted from the salary account of the employee.

Who are liable to pay professional tax?

Professional tax is deducted from the monthly salary of an employee. It is withdrawn in instalments and then deposited with the state authorities. Following are the categories of people who are liable for professional tax payment.

• An individual employed for a monthly salary. It can be either a government or private entity.
• Individuals involved in trade or professions such as doctor, lawyer, CA, etc.
• In the case of other class employees, the person himself is liable to pay the tax.

The owner of an organization or business is responsible to deduct the tax amount from the salary of his employees and deposit it in the relevant state authorities.

Each of the private limited companies, sole proprietors, limited liability partnerships, etc. must apply for the professional tax registration upon incorporation. Even if there are no employees in the organisation, registration under professional tax is mandatory.

Who are exempted from paying professional tax?

There are a few categories that are exempted from paying professional tax. (Again this list changes from state to state).

• Parents or guardians of children with disability
• Members serving for the state and nation like Air Force, Navy, Army, and other Auxiliary forces.
• Individuals over 65 years of age
• Individuals with a physical disability

How professional tax is calculated?

Each state in India operates tax services differently. They follow a unique methodology and rates while calculating the professional tax payment.

The tax is charged based on income slabs set by the government. The states are bestowed to implement this tax obeying Tax under Clause (2) of Article 276.

The maximum amount of tax that can be imposed by any state is Rs.2,500 per annum. whereas the minimum slab rate is Rs.110 per annum.

In order to calculate the professional tax, one must:

Step 1: Consider if the professional tax is applicable in the state of residence

Step 2: If yes, determine the tax amount based on monthly income

Step 3: Look at the tax slab rates according to your salary

This gives an idea of how much professional tax is deductible per month.

Professional tax slabs

The slab rates differ from state to state. Currently, the professional tax is applicable 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.

There are certain states and union territories in India which do not impose the professional tax to its residents. They are:

• Arunachal Pradesh
• Haryana
• Himachal Pradesh
• Jammu & Kashmir
• Rajasthan
• Nagaland
• Uttar Pradesh
• Uttaranchal
• Andaman & Nicobar
• Daman & Diu
• Dadra & Nagar Haveli
• Delhi
• Puducherry
• Chandigarh
• Lakshadweep

Any employer who does not pay the tax even after possessing a ‘Certificate of registration’ will be penalized. Non-payment or delay in payment of professional tax results in interest rate by the government. Hence, it is advisable to calculate the taxes and get prepared in advance in order to avoid penalties. If not, the consequences include:

• In the case of late payment, interest rate ranging from 1% to 2% per month is charged
• A state may also impose a penalty starting from 10% but not exceeding 50% on the total amount due.

In case, if the information provided by is incorrect, the individual is subjected to pay the tax that is three times higher.

The overall rules governing the professional tax may vary from time to time. Hence, before attempting to a professional tax, it is advisable to check with the professional tax experts.

Read on to know When to apply for professional tax in India - Professional Tax Registration.

Why Vakilsearch

We've tied-up with some of the best vendors in major cities of the country to get you your Professional Tax Registration. We've completed 500+ registrations in the past 12 months.

We make your interaction with government as smooth as is possible by doing all the paperwork for you. We will also give you absolute clarity on the process to set realistic expectations.

Our team of experienced business advisors are a phone call away, should you have any queries about the process. But we'll try to ensure that your doubts are cleared before they even arise.