Professional tax can be defined as an indirect tax that is levied by a state government on all individuals who earn an income from salary or anyone practicing a profession such as chartered accountant, company secretary, lawyer, doctor etc. are required to pay this professional tax. This is a type of tax that needs to be paid by each and every individual earning income. The calculation of this tax and the amount collected differs from one state to another. However, the limit has been set to Rs. 2500 per year.
Since the professional tax is levied by the state government, it tends to differ for various states. Each state declares a slab and the professional tax is deducted on the basis of these slabs. However, there are few states and union territories in India that do not charge professional tax too. It is paid by dividing the annual professional tax due into 12 equal instalments, which are to be paid every month. February, as a month, is an exception where the tax is higher than the other months.
Professional tax is a State tax that is levied by the State on account of the infrastructure it provided to the people so that one can carry out the profession in that State. This form of tax was first levied in India in 1949 vide Article 276 of the Constitution of India which provides that “there shall be levied and collected a tax on professions, trades, callings and employments, in accordance with the provisions of this Act. Professional tax is collected by the Commercial Tax Department of the respective states. It covers two types of persons
Registered person: – Employer (Company, Firm, LLP etc.) who employees people and pays tax on the behalf of his employees is called a registered person as he has to get himself registered. Registered persons generally pay tax on a monthly basis but in some states, it’s annually, half yearly or quarterly.
Enrolled person: – Person who works independently say Freelancer, Businessman, Medical Practitioner, Contractor, Estate Agent etc. and pays his tax himself is called enrolled person as he has to enroll himself. Enrolled persons usually pay tax on an annual basis by paying a lump sum amount but in some states tax periods are different.
Important points to note:
There might be situations where sources of income falling under different sectors are also liable for a separate tax. To cite an instance, in some states, an individual running a business in the transport industry might be liable to pay a professional tax of about Rs. 50 per annum for every vehicle he owns. This may be subject to a cap of Rs. 1,000 per annum.
An employer also being a person carrying on trade/profession may require to obtain both registration certificate and enrolment certificate. Let’s understand this with an example, Mr. A is running a business with the help of his employees, in this case, he will register himself to pay tax on his employees’ behalf at the same since he is carrying business/profession, he will enroll to pay tax for himself.
Types of compliances covered by professional tax act and rules made there under: –
- Payment of tax
- Filing of return
- Exhibition of certificate of registration or enrolment certificate at the place of work
Since the said tax is levied by States, at present only 19 states have their own laws and regulations to govern professional tax, let’s figure it out.
States in which professional tax is applicable:-
- Andhra Pradesh:- (A.P. Tax on Professions, Trades, Callings and Employments Act, 1987)
- Assam:- (Assam Professions, Trades, Callings And Employments Taxation Act, 1947)
- Bihar:- (Bihar Tax on Professions, Trades, Callings and Employments Act, 2011)
- Chhattisgarh:- * There is a professional tax act (Chhattisgarh Profession Tax Act 1995) in Chhattisgarh but every person is exempted from this act w.e.f. 1st April, 2011 vide Notification No. F-10/22/2011/CT/V(22) dated 31/03/2011. In other words, Profession tax is not in force in Chhattisgarh at present.
- Gujarat:- (Gujarat Panchayats, Municipalities Municipal Corporations and State Tax on Professions, Trades, Callings and Employments Act, 1976)
- Jharkhand:- (Jharkhand Tax on Professions, Trades, Callings and Employments Act 2011)
- Karnataka:- (Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976)
- Kerala:- In Kerala professional tax is levied on rural and urban basis. In rural area it is levied under Kerala Panchayat Raj Act 1994 and in urban area it is levied under Kerala Municipality Act, 1994
- Madhya Pradesh:- (Madhya Pradesh Vritti Kar Adhiniyam, 1995)
- Maharashtra:- (Maharashtra State Tax on Professions, trades, callings and employments Act, 1975)
- Manipur:- (Manipur Professions, Trades, Callings And Employments Taxation Act, 1981)
- Meghalaya:- (Meghalaya Professions, Trades, Callings and Employments Taxation Act, 1947)
- Mizoram:- (Mizoram Professions, Trades, Callings and Employments Taxation Act, 1995)
- Odisha:- (Orissa State Tax On Professions, Trades, Callings And Employments Act, 2000)
- Puducherry:- In Puducherry professional tax is levied on rural and urban basis. In rural area it is levied under Puducherry Village And Commune Panchayats Act, 1973 and in urban area it is levied under Puducherry Municipalities Act, 1973.
- Tamil Nadu:- In Tamil Nadu professional tax is levied on rural and urban basis. In rural area it is levied under Tamil Nadu Panchayats Act, 1994 and in urban area it is levied under Tamil Nadu Municipal Laws (Second Amendment) Act, 1998.
- Tripura:- (Tripura state tax on Professions, Trades, Callings and Employments Act, 1997)
- West Bengal:- (West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979)
- Punjab:- Professional tax in Punjab is levied under Punjab State Development Tax Act, 2018 w.e.f. 29th April, 2018.
States in which professional tax is not applicable:-
- Arunachal Pradesh
- Himachal Pradesh
- Jammu & Kashmir
- Uttar Pradesh
- Daman & Diu
- Andaman & Nicobar
- Dadra & Nagar Haveli
Here are some FAQ’s on Professional Tax:
Q: Is it mandatory to pay professional tax?
R: Yes, if you are a salaried individual, it is mandatory to pay professional tax.
Q: Who are exempt from Professional tax in Maharashtra?
R: Following personnel is exempted from Professional tax in Maharashtra:
- Members of the army, air force, navy and related auxiliary forces or reservists.
- Persons on the establishment of defense ordnance factories.
- ‘Badli’ workers in the textile industry.
- Persons with a permanent physical disability including blindness.
- Parents or guardian of any person suffering from a physical disability or mental retardation.
- Women exclusively engaged as agents under the MPKBY scheme of the directorate of small savings.
- Persons who have completed the age of 65 years
Q: Why does Professional tax differ from one state to another?
R: Since the professional tax is a tax levied by the state government, it usually differs from one state to another. Each state has its own slab that it declares and the professional tax is deducted based on these slabs.
Q: Is Professional tax applicable in Union territories?
R: As Union Territories are small regions of the country, they tend to generate lower revenue than states. Hence, professional tax is not applicable to employees working in a Union Territory.
Q: What is the maximum amount of professional tax levied by a state?
R: The maximum amount of professional tax levied by a state is Rs. 2,500 which is allowed as a deduction from your salary.