As ‘professional tax’ would have been mentioned in the payslips/Form 16, salaried employees should be familiar with it. However, they may not know what it is or why it is deducted from their salary income on their salary slips. This article thus aims at providing a clearer picture of the ‘Professional Tax’ and why it is deducted and that it is borne by only salaried employees.
The following topics will be discussed in this article:
- Where does Professional Tax come from and who levies it?
- Rates for professionals
- Professional taxes must be collected and paid by whom?
- The consequences of violating professional tax regulations
1. Where does Professional Tax come from and who levies it?
Table of Contents
Unlike the name, the term ‘Professional Tax’ does not convey the meaning. It is a tax on all types of employment, including professions, trades, and jobs. There is a professional tax based on the income of professionals, traders, and contract workers. It can include freelancers, professionals, and others, based on minimum income criteria. The Concurrent and State lists are the only lists on which states can make laws. There is the power to pass laws for professional tax, but it is an income tax that is levied by the State Government (not all states in the country charge professional tax).
Taxes paid on professional services are deductible under the Income Tax Act, 1961.
2. Rates for professionals
Various states levy their own professional tax. Every state has its own laws and regulations governing it. However, all states charge a professional tax based on income.
Additionally, Article 276 of the Constitution, which enables the State Government to levy professional taxes, provides a maximum cap of Rs 2,500 beyond which no professional tax can be imposed.
3. Professional taxes are collected and paid by whom?
Professional tax is collected in states with commercial tax departments and eventually reaches municipal corporations’ funds.
Paying professional taxes is the responsibility of the person
The employer is responsible for deducting and paying professional tax to the State Government in the case of employees. If any, this payment is subject to the monetary threshold provided by the respective State’s legislation. Additionally, employers must also pay professional taxes pertaining to their trades and professions. Therefore, the employer must register and obtain both viz.
- Registration with the tax department for the purpose of paying professional taxes on the trade or profession that he engages in
- For tax deductions from his employees and payment to the state, he may need to obtain a tax enrolment certificate. In addition, the legislation for each state may require separate registrations for each office.
As long as the monetary threshold is met, freelancing businesses without any employees are also required to register under the P.T. Act.
A professional tax levy, however, may be exempt by a State from specific categories of tax. Karnataka Professional Tax is exempt, among others, from the levy for parents and guardians of mentally disabled and blind individuals.
4. The consequences of violating professional tax regulations
If a state does not register, it may be subject to penalties or penal interest, but all such states may impose penalties once professional tax legislation becomes applicable. In addition, if the payment is not made within the due date or if the return is not filed within the specified deadline, penalties are also imposed.
As an example, Maharashtra charges Rs 5/day as a penalty for late registration, interest @ 1.25 percent per month for late payment, a penalty of 10% of the professional tax for late payment, and a penalty of Rs 1000 – Rs 2000 if the return is not filed on time
Read more,
