Professional Tax is a direct tax levied by the state government on individuals who earn a living through employment or as professionals like doctors, lawyers, chartered accountants, any business, freelancers, HUF, and other professionals. The Professional Tax rates and the methods of tax collection differ from state to state and some states do not impose this tax.
The state governments are empowered to frame these laws pertaining to Profession tax under Article 276 of the Constitution of India which deals with tax on profession, employment, and callings.
Professional Tax is levied by the Commercial Taxes Department of each State. The tax is levied based on the income earned through profession, business, or employment. In other words, it’s a tax ₹that is to be paid by each individual who earns income. As mentioned earlier, the tax amount collected differs from state to state and each state or union territory follows its slab system to collect the tax. However, there is a ceiling on the amount of tax that can be collected in a year.
When Professional Tax was imposed in the year 1949 the maximum amount to be collected was ₹ 250 per year. In the year 1988, this was raised to ₹ 2500, and till today it remains unchanged.
What are the different professional tax rates?
The slab structure existing in 2 major districts is briefed hereunder to illustrate the Professional tax rates.
Professional tax slabs in Coimbatore
| Salary Slab | Tax Amount |
| Upto Rs.21,000 | NIL |
| Rs. 21,001 to 30,000 | Rs. 171 |
| Rs. 30,001 to 45,000 | Rs. 428 |
| Rs. 45,001 to 60,000 | Rs. 856 |
| Rs. 60,001 to 75,000 | Rs. 1250 |
| Above Rs.75,000 | Rs. 1250 |
Professional tax slabs in Chennai
| Salary Slab | Tax Amount |
| Upto Rs.21,000 | NIL |
| Rs. 21,001 to 30,000 | Rs. 135 |
| Rs. 30,001 to 45,000 | Rs. 315 |
| Rs. 45,001 to 60,000 | Rs. 690 |
| Rs. 60,001 to 75,000 | Rs. 1025 |
| Above Rs.75,000 | Rs. 1250 |
States and Union Territories where Professional Tax is applicable
The following are the states and union territories where Professional Tax is applicable:
- Andhra Pradesh
- Assam
- Bihar
- Chattisgarh
- Gujarat
- Jharkhand
- Kerala
- Karnataka
- Maharashtra
- Megalaya
- Madhya Pradesh
- Manipur
- Mizoram
- Nagaland
- Odisha
- Puducherry
- Punjab
- Sikkim
- Tamilnadu
- Telangana
- Tripura
- West Bengal
States and Union Territories where Professional Tax is not applicable
The following are the states and union territories where Professional Tax is not applicable:
- Arunachal Pradesh
- Andaman and Nicobar Islands
- Chandigarh
- Delhi
- Daman & Diu
- Dadar and Nagar Haveli
- Goa
- Himachal Pradesh
- Haryana
- Jammu & Kashmir
- Ladakh
- Lakshadweep
- Rajasthan
- Uttar Pradesh
- Uttarakhand
Who collects Professional Tax?
The Commercial Tax Department of the respective state is responsible to collect Professional Tax.
Whose responsibility is it to pay Professional Tax?
Based on whether the taxpayer is a salaried employee, a professional, a trader, or a freelancer the method of paying Professional Tax varies.
- If the taxpayer is a salaried employee, then it is the responsibility of the employer to deduct the tax complement and remit the tax to the government.
- If the taxpayer is a professional like a doctor, a chartered accountant, an engineer, a lawyer, or some other professional, the individual has to register with the department and pay the relevant tax as and when it is due.
- Individuals who are carrying out freelancing activities are required to register with the department and pay tax accordingly.
- Any individual who is carrying on a trade (Corporate, partnership firms, sole proprietorship, etc.) is also required to register and obtain a Professional Tax registration certificate to be able to pay the relevant tax. In addition, the employer has to obtain a professional tax enrolment certificate to be able to deduct the tax from his employees and pay the government. Where the offices are located in different locations, separate registration has to be obtained.
Who is exempted from paying Professional tax?
The Professional Tax Rules expect every individual who earns a regular income to pay the tax to the government as and when due. However, there are certain exemptions to these rules. The list below gives details of the categories of people who are exempted from paying Professional Tax.
- Members of the three services, the Army, Air Force, and Navy.
- An individual who suffers from mental or physical disability. The disability could be blindness, deafness, or any other disability.
- Parent of children who suffer from mental or physical disability.
- Hospitals run on charity that is located in places that are below the taluk level.
- Workers who are temporarily employed in a factory.
- Individuals running educational institutions.
- A foreigner who has been employed by the State.
- Any individual whose age is above 65 years.
- Women who are solely engaged as agents under the Mahila Pradhan Kshetriya Bahat Yogana (MPKBY) of the Government of India.
Penalties for non-compliance with Professional Tax rules and non-payment of tax
The penalty for non-compliance and non-payment of tax is determined by the Professional Tax regulation of each state. Businesses that fail to register with the authorities or default in payment or fail to file the returns by the scheduled date are penalized with fines, late fees, or interest. For example, Karnataka imposes a fine of 1.25% per month on any unpaid tae, whereas, West Bengal imposes an annual fee of 12% on a registered employer who fails to pay the tax dues. In Maharastra, the penalty of ₹ 5 per day is imposed for late registration. For late payment of tax, 1.25% monthly interest is charged and for non-payment, a 10% penalty is imposed. For late submission of returns, the penalty is in the range of ₹ 1000 to ₹ 2000.
Conclusion
Professional Tax is a mandatory tax levied on every individual who earns a living. This may be a very onerous tax and with the frequent changes in the rules and regulations, it is advisable to consult with professionals to be fully compliant.
GetifyHR has immense experience in handling Professional Tax and all other Statutory Compliance issues. With our high-performance, technology-oriented, cloud-based outsourcing Payroll and HR Management module, we have been able to reduce the burden of our valued clients in handling the payroll. All statutory compliance issues including Professional tax matters have been skilfully handled thus guaranteeing the smooth running of the entire payroll and management process.