Professional tax is a tax on all kinds of professions, trades, and employment and is levied based on the income of such profession, trade and employment. It is levied on employees, a person carrying on the business, including freelancers, professionals, etc., subject to income exceeding the monetary threshold if any. As per Article 246 of the Constitution of India, only the Parliament has the exclusive power to make laws with respect to the 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 levied by the state government (not all states in the country chose to levy professional tax). The 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 the Income-tax Act  1961 and can be deducted from taxable income. Tej and Associates offers Profession Tax along with other essential tax services like PAN, TAN, TDS, TRC, GST registrations, Shops Act, MSME registration, Employee Provident Fund .  Employee State Insurance, Non STPI and STPI, Import Export Code, and Trade Licence.     

Profession 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 the professional tax of that particular state. However, all the states follow a slab system based on 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 to any person.  

• Professional tax rate slabs in Karnataka

Monthly salary/wage up to Rs 25,000	NIL
Monthly salary/wage > Rs 25,000	Rs 200 per month

 

COLLECTION AND PAYMENT OF PROFESSION TAX

 

COLLECTION

Professional tax is collected by the Commercial Tax Department. The commercial tax department of the respective states collects it which ultimately reaches the fund of the municipal corporation.   

PAYMENT

• In case of employees, an employer is a person responsible for deducting and paying professional tax to the state government subject to the monetary threshold, if any, provided by the respective State’s legislation. 
• An 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 a case, the employer needs to register and obtain both a professional tax registration certificate to be able to pay professional tax on his trade/profession and a 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 guardians of any person who is suffering from mental retardation or blind persons are exempted, among others, from the levy of Karnataka Professional tax.

 

How to Pay Professional Tax?

  Professional tax is a direct tax levied by the state government.  As a result, the form of payment may differ from one state to the next. Professional tax, on the other hand, can be paid both online and offline. To pay professional tax, you must go to the official website of the relevant state. It is important to note that if you are a salaried individual, then such professional tax will be collected and remitted by your employer.    

Exemptions in Professional Tax

  Even though everyone who earns a regular income (salary) is expected to pay the professional tax, some people are exempt. As a result, if you fall into one of the categories listed below, you are exempt from paying professional tax.

• Member of Force (Governed by Army, Air Force, Navy Act)
• An individual suffering from mental or physical disability. Disability can be blindness, deafness, etc.
• Parent of a child suffering from a disability
• Charitable hospitals are present in places that come below the taluk level
• Badli workers (temporary workers that are employed in a factory)
• Individuals running an educational institute in respect of their branches teaching classes upto 12th standard or pre-university.
• A foreign individual who has been employed by the relevant state
• Any individual above 65 years
• Women who are solely engaged as agents under the Government’s Mahila Pradhan Kshetriya Bachat Yojana

 

Consequences of Violation of Profession Tax Regulation

  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 the due date and failing to file the return within the specified due date. In Maharashtra, for example, the penalty for late registration is Rs 5 per day. There is also 1.25% monthly interest for late payment, a 10% penalty on the tax amount for non-payment/delay of professional tax, and a penalty of Rs.1, 000-2,000 for late return submission. Professional tax is a direct tax that applies to individuals earning an income by way of employment, practising their profession, or trading. A practising professional includes a lawyer, teacher, doctor, chartered accountant, etc.   The tax is deducted from the individual’s monthly salary by their employer and is deposited to the state governments. Professionals apart from salaried employees pay it directly to the government.  Such professionals can claim a tax deduction for the professional tax paid during the financial year as per the Income Tax Act 1961.    

Who is responsible to collect and pay profession tax?

  In the case of a salaried employee, the employer must deduct professional tax from their salary every month and deposit it to the government. The employer needs to get a Registration Certificate from the concerned authorities to deposit the deducted tax.  Whereas, the self-employed individuals who carry out their profession or trade and fall into eligibility criteria are required to pay the professional tax themselves to the state government. They need to obtain a Certificate of Enrolment from the concerned state’s prescribed authority.  Every state/UT has a commercial tax department that collects professional tax based on predetermined income slabs.     

Profession tax registration and process

All employers must obtain professional tax registration within 30 days of employing individuals. In the case of other professionals, the registration must be obtained within 30 days from the start of their practice.  If the employer has more than one office, then the registration must be obtained for each office depending on the respective state rules.  It might be challenging for employers to catch hold of the registration process of all the states wherever professional tax is applicable.   Here’s the list of states where professional tax is not applicable.   

Andaman and Nicobar Islands	Himachal Pradesh
Arunachal Pradesh	Jammu and Kashmir
Chandigarh	Ladakh
Chhattisgarh	Lakshadweep
Dadra and Nagar Haveli	Rajasthan
Daman and Diu	Uttar Pradesh
Delhi	Uttarakhand
Goa	Haryana

 

What is the procedure to pay profession tax? Is any return to be filed? 

Professional tax is a state subject. There is no fixed procedure to pay professional tax. It can be paid either online or offline modes depending on the state from where the business is operating.  Also, the intervals and procedure for filing professional tax returns depend on the State. Consequences of violation of professional tax regulation The actual penalty depends on the respective State professional tax laws. Businesses might have to pay penalty, late fee or interest for non-registration, delay in tax payments and non-filing of returns within the specified due date.  For instance, the Karnataka state government charges an interest of 1.25% per month for any late tax payments. Whereas, West Bengal charges 12% per annum.

Exemptions in Professiona Tax

The following individuals are exempt from paying professional tax: 

1. Parents or guardians of children with a mental disability or permanent disability
2. An individual suffering from a permanent physical disability including blindness
3. Any individual of above 65 years
4. Members of the forces as defined in the Air Force Act, 1950, the Army Act, 1950 and the Navy Act, 1957 including members of auxiliary forces or reservists, serving in the state
5. Temporary workers employed in the textile industry
6. Women exclusively engaged as agents under the Mahila Pradhan Kshetriya Bachat Yojana

 Professional tax is levied by the state government and is one of the sources of income for the state government (some states chose not to levy this tax). This tax is used to improve the services for professionals in that state. State Government is also empowered to make laws with respect to professional tax. Your employer pays this tax to the state government on your behalf. The amount of deduction is generally INR 200, it differs from state to state.  

Who is Responsible for deducting Profession Tax?

In the case of salaried individuals and wage earners, the employer is liable to deduct professional tax on a monthly basis. Therefore, the employer needs to register and obtain both the Professional Tax Registration Certificate to be able to pay professional tax on his trade or profession and Professional Tax Enrolment Certificate to be able to deduct the tax from his employee’s salary and pay. Click here to check the list of forms for payment of Profession Tax. Self-employed persons who carry out their profession or trade on their own and fall in the ambit of profession tax are liable to pay the tax themselves to the state government.  

Profession Tax Slab

The rate of professional tax varies from one state to another. However, the limit has been set to Rs. 2500 per year as per Article 276 of the Constitution. Therefore, each state declares a slab, and the tax is deducted on the basis of these slabs. Here are some illustrative Profession Tax slabs in a few states:     Maharashtra

Income per month (INR)	Tax per month in (INR)
Upto 7500 for Men	Nil
Upto 10000 for Women	Nil
7501 to 10000 for Men	175
More than 10000	200 ( And 300 for February)

  Gujarat (Effective from 01/04/2022)

Income per month (INR)	Tax per month (INR)
Upto 12000	Nil
More than 12000	200

  Karnataka

Income per month (INR)	Tax per month (INR)
Upto 15000	Nil
More than 15000	200

  Tamil Nadu (Effective from 01/04/2022)

Income per month (INR)	Tax per month (INR)
Upto 21000	Nil
21,001 to 30,000	135
30,001 to 45,000	315
45,001 to 60,000	690
60,001 to 75,000	1025
More than 75,000	1250

 

Consequences of not getting registered for Profession Tax

If a person fails to get registration, then he will be liable for a penalty for the period during which he remains unregistered. However, the actual amount of penalty or interest shall depend upon State’s Legislation. Non-payment of tax or a late payment attracts a 10% additional tax.

Procedure to Pay Profession Tax

Profession tax can be paid either online/offline. The interval for return filing can be monthly, annually or semi-annually based on the law of the state.  

 Exempt from Profession Tax Deduction

Several categories of individuals are exempt from a professional tax deduction, including:

• Members of the armed forces (army, air force, navy, and auxiliary/reserve members)
• Defence-related factory workers
• Badli workers in the textile industry
• Individuals with permanent physical disabilities like blindness
• Parents/guardians of people with physical or mental disabilities
• Women under the MPKBY small savings scheme, and individuals above the age of 65.

How to Pay Profession Tax Online?

Making professional tax payments is convenient and can often be done online. Each state has its own official website for e-payment of professional tax.

To pay online, follow these general steps:

•         Locate the official state website for professional tax e-payment.
•         Select the relevant option for self-employed professionals or registered employers.
•         Enter your Professional Tax Registration Number and company/firm details (if applicable).
•         Choose the payment period (monthly, annually, or as per departmental demand).
•         Specify the year and month for which you are paying tax.
•         Enter the tax amount and any applicable penalty.
•         Provide bank details for payment and your mobile number for verification.
•         Submit the payment and save the payment challan for future reference.

What Happens if Profession Tax Is Not Paid?

Failure to pay professional tax or register for it can result in penalties, which vary depending on the state’s legislation. Late registration can incur a daily penalty, while late payment may be subject to monthly interest. Non-payment or delayed payment of professional tax may also lead to additional penalties, making timely compliance crucial to avoid financial repercussions. For example, in Maharashtra, the penalty for late registration is Rs 5 per day, with 1.25% monthly interest on late payments and a 10% penalty on the tax amount for non-payment or delay. Late return submissions may also attract a penalty of Rs. 1,000-2,000. Staying informed and fulfilling your professional tax obligations is essential to ensure a smooth and compliant financial journey.