What is Professional Tax? The state government levies the professional tax on income from profession or employment. Individual earning an income from salary or anyone carrying out a profession such as a lawyer, doctor chartered accountant, etc. are required to pay this professional tax. Different states in India have different rates and methods to collect Professional Tax. The states which impose the professional tax in India are Andhra Pradesh, Karnataka, Madhya Pradesh, Telangana, Tripura, Tamil Nadu, Telangana, Telangana, West Bengal, Maharashtra, Chhattisgarh, Kerala, Meghalaya, Odisha, and Sikkim. Business owners, merchants and people carrying out various occupations come under the purview of this tax.
Must Read: Professional Tax Slab Rates
Professional Tax in India
Professional tax is to be paid by every single earning individual in India. The tax calculation and amount collected may vary from one state to another, but it has a limit of Rs. 2500/- per year. Professional Tax is paid by dividing the annual profession tax due into 12 equal installments that are paid every month. The Tax paid in February is higher than the other months. In some cases, the sources of income falling under different sectors will also be liable for a separate tax.An amount paid as Professional Tax to the State Government is allowed as a deduction under Section 16 of the Income Tax Act. The Income Tax on the Balance Amount is levied as per the Income Tax Slab Rates in force.
In a case of Salaried employee and Wage earners, the Professional Tax is liable to be deducted by the Employer from the Salary or Wages and the Employer is liable to deposit the same amount with the state government. In the case of Individuals Professional tax is paid by himself. Let us take an example, in some states, Mr. Kim Hyun Joong running a business in the transport sector may be required to pay a professional tax of about Rs. 50/- per annum for each of the vehicles owned and it may be subject to a capital of Rs. 1,000 per annum.
Professional Tax Exemptions
As per Rule 32 of the Professional Tax Rules 1975, parents of children with the permanent disability or mental retardation are exempt from paying professional Tax (Reference: Trade Circular No PFT-1095/Adm-7/87/B-1109, Circular No 34- T of 1996, Mumbai dated 06/11/1996.
The following persons are exempted from payment of Profession Tax.
- Members of the forces as defined in the Army Act, 1950 or the Air Force Act, 1950 and the Navy Act, 1957 including members of auxiliary forces or reservists, serving in the state.
- The Badli workers in the textile industry.
- An Individual suffering from a permanent physical disability (including blindness).
- Women exclusively engaged as agent under the Mahila Pradhan Kshetriya Bachat Yojana or Director of Small Savings.
- Parents or guardian of an individual who is suffering from mental retardation.
- An Individual, who have completed the age of 65 years, (with effect from 01/04/1995).
- The Parents or guardians of a child suffering from a physical disability as specified in clause (C) with effect from 01/10/1996.
Who is responsible for deducting Professional Tax?
- The employer is responsible for deducting professional tax from the salaries of his employees and paying the amount so collected to the appropriate State government.
- An Employer has to furnish a return to the tax department in the prescribed form within the specified time.
- The return (which is filed) should include the proof of tax payment. In case the payment proof is not enclosed, the return shall be deemed incomplete or invalid.
Professional Tax Registration
Professional Tax is a state level that applies to salaried employees and professionals, including lawyers, chartered accountants, and doctors. In the Following state in India, Profession Tax is applicable in Andhra Pradesh, Assam, Chhattisgarh, Tamil Nadu, Karnataka, West Bengal, Maharashtra, Gujarat, Kerala, Meghalaya, Orissa, Tripura and Madhya Pradesh. Profession Tax Registration is mandatory within 30 days of employing staff in business or, in the case of professionals, 30 days from the start of the practice. Profession tax needs to be deducted from the salary or wages paid; the amount varies by state and amount.
- Apply for the Registration Certificate to assessee state’s tax department within 30 days of employing staff for his business.
- If the assessee has more than one place of work, then apply separately to each authority as regards the place of work coming under the jurisdiction of that authority.
Documents required for Profession Tax Registration
List of records necessary for the registration of Professional Tax is given below.
- A Copy of PAN Card of the Company.
- A Copy of Certificate of Incorporation of Memorandum & Articles of Association.
- A Copy of List of Directors of the Company.
- A Copy of ID Proof & Address proof of the directors.
- A Copy of Board of Directors Resolution.
- ACopy of List of Employees (On the letterhead of the company).
- AnID Proof & Address proof of Authorized Signatory.
- A Copy of Leave & License agreement of the premises.
- A Copy of Leave & License agreement of warehouse premises.
- A Latest Electricity Bill or Maintenance Bill of the premises.
- A Latest Electricity Bill or Maintenance Bill of the warehouse premises.
- A Canceled Cheque (Original).
Penalties for NonCompliance on Professional Tax Payment
- Delay in obtaining Registration Certificate, a penalty of Rs. 5/- per day.
- In the case of non/late payment of profession tax, the penalty will be 10% of the amount of tax.
- In the event of late filing of returns, a penalty of Rs. 300/- per return will be imposed.