Many salaried employees might be very well aware of the term ‘professional tax’ as it would have been mentioned in the payslips/Form 16 issued to them. But all of them may or may not understand what it is and why is it appearing in their payslips/Form 16 as a deduction from their salary income. Hence, this article is an attempt to provide a better picture of what is ‘Professional tax’ and why is it deducted and is it only salaried class who are bearing it.
Meaning of Professional tax and its levy.
The name says the tax is professional tax, but actually it is not a tax just on professionals.It is a tax on all kinds of professions, trades, and employment and levied based on the income of such profession, trade and employment. It is levied on employees, a person carrying on business including freelancers, professionals, etc., subject to income exceeding the monetary threshold if any.
As per Article 246 of the Constitution of India, only Parliament has the exclusive power to make laws with respect to Union List which includes taxes on income. The state has the power to make laws only with respect to the Concurrent and State list. However, professional tax though is a kind of tax on income is levied by State Government (not all states in the country chose to levy professional tax). State Government is also empowered to make laws with respect to professional tax though being a tax on income under Article 276 of the Constitution of India which deals with tax on professions, trades, callings and employment.
It may be noted that professional tax is a deductible amount for the purpose of Income-tax Act, 1961 and can be deducted from taxable income.
Professional tax rate
Professional tax being levied by the State Government, is different in different states. Every state has its own laws and regulations to govern professional tax of that particular state. However, all the states do follow slab system based on the income to levy professional tax.
Further, Article 276 of the Constitution which empowers the State Government to levy professional tax also has provided for a maximum cap of Rs 2,500 beyond which professional tax cannot be charged on any person.
Few illustrative slabs in the country
|S.No||Half Yearly Income||Half Yearly Professional Tax|
|1||Up to Rs.11999||Nil|
|2||Rs.12000 to Rs.17999||Rs.120|
|3||Rs.18000 to Rs.29999||Rs.180|
|4||Rs.30000 to Rs.44999||Rs.300|
|5||Rs.45000 to Rs.59999||Rs.450|
|6||Rs.60000 to Rs.74999||Rs.600|
|7||Rs.75000 to Rs.99999||Rs.750|
|8||Rs.100000 to Rs.124999||Rs.1000|
|9||Rs.125000 and above||Rs.1250|
Professional Tax Slab Rates in Maharashtra
For Financial Year 2018-19
|MONTHLY SALARY||PROFESSIONAL TAX LEVIED (PER MONTH)|
|Up to Rs. 7,500||Nil|
|Rs. 7,501 to Rs. 10,000||Rs. 175|
|Above Rs. 10,000 Women who earn salary up to Rs. 10,000 per month are exempted from paying professional tax.||(Rs. 200 for all months other than February) (Rs. 300 for the month of February)|
States which do not have Profession Tax
- Arunachal Pradesh
- Uttar Pradesh
- Andaman and Nicobar
- Daman and Diu
- Dadra and Nagar Haveli
Responsibility to collect and pay professional tax
Professional tax is collected by the Commercial Tax Department. The commercial tax department of the respective states collect it which ultimately reaches the fund of municipality corporation.
Person responsible to pay professional tax
In case of employees, an employer is a person responsible to deduct and pay professional tax to the State Government subject to the monetary threshold if any provided by respective State’s legislation. Additionally, employer (corporates, partnership firms, sole proprietorship etc) also being a person carrying on trade/profession is also required to pay professional tax on his trade/profession again subject to the monetary threshold if any provided by respective State’s legislation. In such case, the employer needs to register and obtain both professional tax registration certificate to be able to pay professional tax on his trade/profession and professional tax enrolment certificate to be able to deduct the tax from his employees and pay. Further, separate registration may be required for each office depending on the respective State’s legislation.
Persons who are carrying on freelancing business without any employees are also required to register themselves subject to the monetary threshold if any, provided by the respective State’s legislation.
However, a professional tax levy is subject to the exemption provided by the respective State to certain categories. For example, parents or guardian of any person who is suffering from mental retardation, blind persons are exempted among others from levy of Karnataka Professional tax.
Filing of return.
This is again a State-specific query. However, in general, a professional tax may be paid either online/offline. Further, depending on the State’s requirement professional tax return also need to be filed at specified intervals.
Violation of professional tax regulation-impact
While the actual amount of penalty or penal interest may depend on the respective State’s legislation, a penalty may be levied by all such states for not registering once professional tax legislation becomes applicable. Further, there are also penalties for not making the payment within due date and also failing to file the return within the specified due date.
For example: In the State of Maharashtra Rs 5/day is imposed as a penalty for delay in registration, Interest @ 1.25% per month of delay in payment, a penalty of 10% of the amount of tax in case of delay/non payment of professional tax, Rs 1000 – Rs 2000 penalty for delay in filing the return