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Question 1. What is Professional Tax?
Answer: Article 276 of the Constitution which empowers the State Government to levy professional Tax. Professional tax is a State Tax, imposed by the State Government on account infrastructure it provides to an individual so that an individual can carry profession in that particular state. This tax is levied by a state government on all individuals who earn a living through any medium.
Question 2. Applicability of Profession Tax?
Answer: Profession tax is applicable to the following classes of persons:
1. An Individual
2. A Hindu Undivided Family (HUF)
3. A Company/Firm/Co-operative Society/Association of persons or a body of individuals, whether incorporated or not
4. Every person engaged in any profession, trade, calling or employment and falling under one or the other of the classes mentioned in the second column of the Schedule shall be liable to pay to the State Government tax at the rate mentioned against the class of such persons in the third column of the said Schedule.
5. Provided that entry 23 in the Schedule shall apply only to such classes of persons as may be specified by the State Government by notification from time to time.
Question 3. Who is responsible to collect and pay professional tax?
Answer: The owner of a business is responsible to deduct professional tax from the salaries of his employees and pay the amount so collected to the appropriate government department.
If you are a professional who does not work with an employer, you can pay your professional tax by registering for it by applying through a form. Once you receive the form, a registration number will be issued to the individual. Payment of the professional tax can be made under these registration numbers at banks. It is important to note that, in some states, the government provides rebates on the taxes if it is paid in a lump sum for a couple of years together. This is done so it is worth enquiring about the rules of professional tax in your state.
Question 4. Who are liable to register for Professional Tax?
Answer: Employers have to apply for the Registration Certificate of their respective State Tax Department within 30 days of employing the staff. In case the place of work spans multiple states or place, application for the Registration Certificate has to be done separately to each authority with respect to the place of work coming under the jurisdiction of that authority.
Persons who are carrying on freelancing business without any employees or who do not work for an employer are also required to register themselves subject to the monetary threshold if any, provided by the respective State’s legislation.
Question 5. What is the maximum amount of professional tax levied by a state?
Answer: A maximum of Rs. 2,500 can be levied as a professional tax on any person per financial year.
Profession Tax Is Deductible Under Section 16 (iii) Of The Income Tax Act: According to Section 16 (iii) of the Income Tax Act 1961, the profession tax paid by an employee is allowed as a deduction from his/her gross salary income.
Question 6. Who collects and deposit of Amount Deducted?
Answer: 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 Municipality Corporation.
• Employers covered under the jurisdiction of “State Government” as the Designated Authority shall pay in the treasury by Challan through the bank. Other employers shall pay at the place of payment declared by the Designated Authorities concerned.
• If an employer has employed more than 20 employees, he is required to make payment within 15 days from the end of the month. However, if an employer has less than 20 employees, he is required to pay quarterly (i.e. by the 15th of next month from the end of the quarter).
• An employer is 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, an 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 also required to register and deposit the tax subject to the monetary threshold if any provided by respective State’s legislation.
However, the 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.
Question 7. What are the Indian States and Union Territories in which Profession Tax is applicable?
Answer: Following are some of the Indian states and union territories where professional tax is applicable:
1. Andhra Pradesh
2. Karnataka
3. Maharashtra
4. Tamil Nadu
5. Assam
6. Kerala
7. Meghalaya
8. Tripura
9. Bihar
10. Jharkhand
11. Madhya Pradesh
12. West Bengal
13. Manipur
14. Mizoram
15. Odisha
16. Puducherry
17. Sikkim
18. Telangana
19. Nagaland*
20. Chhattisgarh
21. Gujarat
*According to the Nagaland Department of Taxes, professional tax is applicable in the state, however, other widely-followed publications there is no professional tax applicable in Nagaland.
Note: Delays in obtaining Registration Certificate, a penalty of Rs. 5/- per day. In case of non/late payment of profession tax, a penalty will be 10% of the amount of tax. In case of late filing of returns, a penalty of Rs. 1000 per return will be imposed if you filed after the due date in 1 month. After 1 month, a penalty of Rs. 2000 will be imposed.
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