A state-level tax known as professional tax is levied on those who make money from work or their profession. States have different tax rates, which are often determined by income brackets. The employer withholds professional tax from the employee's income and pays it to the state government for revenue creation and welfare programmes.
Professional tax is a tax charged by state governments in India on all professions, trades, and employment based on the income of such professions, trades, and employment on the notion of professional service or skills rendered by such professionals.
Professional tax is levied on every professional subject to the exemption slab and requirement of the legislation, if any, made by the respective state. However, not all states in India impose professional tax.
The professional tax rate varies from state to state and is based on a slab system. The maximum professional tax any state can impose in India is ₹2,500 per annum. Professional tax is deductible from taxable income under section 16 (iii) of the Income Tax Act, 1961.
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State governments impose and collect professional taxes. Therefore the rates and rules can differ from one state to the next. It is a type of direct tax on those who receive income from employment, and the money it raises goes towards the welfare and advancement of the state in question.
What Is a Professional Tax?
The employer collects the professional tax in the case of a salaried individual and pays the taxes on behalf of the employee to the respective state authority. Self-employed persons, professionals, traders, etc., must pay the professional tax to the state government.
The professional tax is a source of revenue for the state governments, which helps implement schemes for the region's welfare and development.
Exemption from Professional Tax
According to the Professional Tax Rules, some people are excluded from paying professional taxes.
The people listed below are exempt from paying professional taxes.
- Member of Force.
- An individual suffering from a mental or physical disability such as blindness, deafness, etc.
- Parent of a child suffering from a disability Charitable hospitals in places below municipal areas.
- Senior citizens above 65 years of age.
Who Is Responsible for Paying Professional Taxes?
The responsibility to pay professional tax depends on the type of income and the state legislation.
Generally, the following persons are responsible for paying professional tax.
- Professional tax must be paid by those in the professions earning money from salaries or other sources, such as lawyers, teachers, doctors, chartered accountants, etc.
- In the case of salaried and wage employees, the employer is required to deposit professional tax from the salary or earnings and deposit the money with the state government.
- Business owners, traders, merchants, and people carrying out various occupations must also pay professional tax on their own to the state government. They have to obtain a registration certificate from the Commercial Tax Department of the respective state and pay the tax as per the prescribed rates and due dates.
- Employers who deduct and pay professional tax on behalf of their employees are also required to pay professional tax on their own trade or profession. They have to obtain a separate registration certificate for themselves and pay the tax as per the applicable slab.
- The professional tax is collected by the Commercial Tax Department of respective states on behalf of the municipal corporation. Professional tax rates and due dates vary from state to state and are governed by the respective state legislation.
- Professional tax is required once a person starts their profession or business within 30 days of establishing their profession. If a firm has multiple locations, it must register for each location if it has a presence there.
Consequences of Violation of Professional Tax Regulation
The consequences of professional tax regulation violations vary from state to state and depend on the type and extent of the violation.
Generally, the following types of violations may attract penalties, late fees, or interest:
- Failure to register for professional tax within 30 days of starting the profession or business
- Failure to pay professional tax within the due date
- Failure to file professional tax returns within the due date
- Failure to deduct and pay professional tax on behalf of employees
- Failure to maintain proper records and documents related to a professional tax
The actual amount of penalty or punitive charges will depend on the respective state’s professional tax laws.
For example, in Karnataka, the following are the penalties for violating the professional tax regulation -
- If an employer fails to register, they will be fined ₹1,000.
- If additional people fail to register: ₹500
- Should the returns not be filed: ₹250
- If an enrolled employer or individual fails to pay, the following penalties and interest will be assessed: a fine not to exceed 50% of the amount of the unpaid tax.
How to Pay Professional Tax?
- To pay professional tax, one must register with the respective state's Commercial Tax Department and obtain a professional tax payment number or Enrollment Certificate (EC).
- Professional tax can be paid both online and offline. To pay online, one needs to visit the official website of the relevant state and select the option for e-payment of professional tax.
- On the e-payment portal, one must enter the details such as professional tax registration number, name, address, period of payment, amount of tax, bank details, etc. and verify the information before submitting.
- After submitting the details, one will be redirected to the bank’s login page, where one can sign in and pay using net banking, debit card, credit card or any other mode available.
- After making the payment, one should save or print the payment challan or receipt for future reference and proof of payment.
Alternatively, one can also pay professional tax offline by visiting the district sales tax office, filling out the required form, and making a cash payment. However, online payment is more convenient and faster than offline payment.
How Is Professional Tax Different From Income Tax?
Professional tax and income tax are different forms of direct taxes and levied based on different criteria. For example, the levy of income tax on a person's taxable income is subject to tax assessment only when it has nexus with India. In contrast, professional tax is levied on the course of professional rendering professional skills either as an Individual practitioner or under the course of their employment.
Here are a few differences between the two -
- Professional tax is a subject matter of particular state legislation, while laws and regulations related to Income tax are the subject matter of parliament.
- While professional tax is the subject matter of a particular state. Not all states choose to levy professional tax; thus, it is not levied by every state. While Income tax is the subject matter of central government, the law requires everyone to pay income tax on an Individual assessment basis.
Professional tax is a state-level tax that applies to various professions, trades, and employment based on their income. It is a source of revenue for state governments and municipal corporations.
It is also a deductible amount for the purpose of income tax. The rate and due date of professional tax differ from state to state and are governed by the respective state legislation.
The maximum amount of professional tax that can be levied is Rs 2,500 per annum. Professional tax can be paid online or offline by obtaining a registration certificate from the Commercial Tax Department.
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