What is Professional Tax? How it is calculated?

Introduction:

Apart from Income Tax, there is one more Tax which is levied on the basis of Income of one person which is professional Tax. Professional Tax is levied not only over professionals like CAs, Doctors, Lawyers but also over Traders, employees, or Freelancers on the basis of their Income. If we talk about salaries person, they generally worried about professional tax which is shown under deductions in their monthly payslips by the employer but they do not know why it is deducted and on what basis it is getting deducted every month from their salary. Let’s discuss in this article What exactly professional Tax means, Who has the power to recover this? how it is calculated? And What are the consequences of violation of professional Tax provisions?

What is Professional Tax and Who has the power to levy this?:

Every Tax can be levied by either state or central government according to the powers vested to them by our constitution of India. The state government is empowered to make laws and collect taxes for the items mentioned in the state as well as concurrent lists. Constitution State government has got the power to make laws related to Professional Tax.

Professional Tax is levied and collected by the government of the respective state. Today also many states are imposing professional tax and also many states which did not exercise this power to impose a tax on their citizens.

Professional tax is a tax that is imposed over the professionals, businessmen, freelancers, employees on the basis of their Income. People with more Income have to pay more taxes and people with less income have to pay less or maybe no professional tax. All these rules are formed by the state government. We can’t discuss this in this article from a state-specific point. So, we will discuss general points related to the professional Tax by taking examples of some of the key states. 

Applicability of Professional tax:

Professional tax is applicable to the following class of persons:

• Individual
• Hindu Undivided Family (HUF)
• Company whether incorporated or not
• Firm/ Co-operative society/ Association of Persons/ Body of Individuals whether incorporated or not.

However, there are some exemptions from paying professional taxes as per every state law. For example, if I talk about the state of Maharashtra, Following are exempt from paying professional tax:-

• A person who has attained 65 years of Age.
• Parents whose child is suffering from a mental disability.
• Persons or parents of a child suffering from a physical disability.
• Badli workers from the textile Industry.

So, similarly, there are different exemptions provided by the various state governments to their citizens.

How to Calculate Professional tax:

Professional tax can be levied by the respective State Government on the basis of Slabs of Income or by way of a fixed percentage. Generally, it has been observed that most of the states follow the slab rate system to charge professional Tax depends upon the slabs of the income of the Taxpayers.

Let’s Have a look over professional Tax slabs of some of the key states in India who have opted to charge professional Tax:

STATE	Income (Per Month)	Professional Tax Amount ( Per Month )
Maharashtra	For Males: Upto Rs. 7,500                     Between Rs. 7,500 to Rs. 10,000	Nil Rs. 175
	Both Males and Females: Above Rs. 10,000	Rs.200 per month for 11 months and Rs. 300 for 12th Month
West Bengal	Up to Rs. 10,000 Between Rs. 10,001 to Rs. 15,000 Between Rs. 15001 to Rs. 25,000 Between Rs. 25,001 to Rs. 40,000 Above Rs. 40,000	Nil Rs. 110 Rs. 130 Rs. 150 Rs. 200
Gujarat	Up to Rs. 5,999 Between Rs. 6,000 to Rs. 8,999 Between Rs. 9,000 to Rs. 11,999 Rs. 12,000 and Above	Nil Rs. 80 Rs. 150 Rs. 200
Karnataka	Upto Rs. 15,000 Above Rs. 15,000	Nil Rs. 200

Note: No State Can charge professional tax more than Rs. 2,500 per annum. So, in the above table, we can see the example of Maharashtra is levying the highest professional Tax of Rs. 2,500.

Mode of Payment of Professional tax:

The commercial Tax department is authorized to collect the professional tax. Professional Tax collected by the department ultimately reaches to the municipal corporation fund.

In case of employee liable to pay professional Tax, their employer is liable to deduct professional tax from their monthly salary as per the threshold limit or slab rates introduced by the concerned state government and needs to deposit that tax deducted with the respective State Government. An employee can also claim a deduction of Professional Tax paid while filing his Income-tax Return.

In the case of an employer, he needs to take professional Tax registration and must pay professional Tax deducted and file return on specific intervals as directed by the respective state government just like normal Provident Fund.

Professional tax can be paid online or offline mode both and this same has been dependent upon the state-specific provisions made for the recovery of such tax.

Consequences of Violation of professional Tax provisions:

After all discussion, we are now aware of the fact that every state has different provisions related to their state’s professional tax matters. So, there are various provisions which need to be complied with like: Payment of professional Tax on time, Filing of professional tax returns on specified intervals by the due date, Payment of interest or fines in case of any delay in payment of tax or filing of the return, Deduction of professional tax by employer and deposit that to the government. If there is any violation in relation to any of the there are different fines and penalties levied on the defaulters which also differ from state to state.

Let’s Take an example of State of Maharashtra: followings are the fines and penalties for the defaults:

• An employer needs to take registration of professional tax. If there is any delay there will be a penalty of Rs. 5 per day of delay of not obtaining registration.
• The penalty of Rs. 1,000 in case there is any delay in filing return of professional tax
• The penalty of 10% shall apply in case there is any delay in payment of professional tax dues.
• Interest @ 1.25% per month shall also be applicable for the delay in payment of professional tax to the government.

Conclusion:

In the end, I will conclude this discussion of professional tax by saying that it is the tax collected by the State government. Every state has its own rules regarding the Collection of Tax and punishments in case there is any violation of any regulation made by the state government. Central Government cannot intervene in the decision of state government to levy or not to levy professional tax. However, the State can not charge more than Rs. 2,500 professional tax from a person in a year.