Professional Tax: Everything You Need to Know

Professional tax, also known as Profession Tax, is a tax that is levied by the state governments of India directly. Professional tax was incorporated into the Indian constitution in 1949, and since then, it has become a crucial part of India’s taxation system, impacting salaried as well as self-employed individuals. To ensure compliance, it is first important to understand the meaning of professional tax and its significance.

Table of Content

• What Is Professional Tax?
• Who Is Liable to Pay Professional Tax in India?
• Which States Levy Professional Tax in India?
• Professional Tax Slabs and Rates
• Exemptions in Professional Tax
• How to Register for Professional Tax?
• Consequences of Not Paying Professional Tax in India

What Is Professional Tax?

Professional tax is a direct tax that is levied by state and union territory governments in India on individuals who are earning an income through trade, salary, or any other form of employment. The tax is state-specific and is separate from income tax, which is levied by the central government. Professional tax acts as a source of revenue for state-level development and welfare programmes. While the tax amount varies from state to state, it has been capped at Rs 2,500 per year. Like for other types of taxes, your PAN card serves as your primary identifier as a taxpayer for the professional tax as well.

Who Is Liable to Pay Professional Tax in India?

Employees pay the tax via TDS and employers are responsible to make the professional tax payment. On the other hand, if you are a self-employed individual, you will need to make the payment yourself.

People who need to pay professional tax include:

• Salaried individuals
• Self-employed professionals who earn more than the stipulated income limit
• Companies, businesses, and private firms
• Incomes earned by Hindu Undivided Families (HUFs) area also eligible for professional tax

Which States Levy Professional Tax in India?

All states in India do not levy professional tax, but the ones that do, have their own income brackets and corresponding tax slabs. Major states in India that levy professional tax include Andhra Pradish, Karnataka, Tamil Nadu, Maharashtra, Meghalaya, Tripura, Mizoram, Bihar, and many more.

On the other hand, Himachal Pradesh, Haryana, Delhi, Arunachal Pradesh, Uttarakhand, Uttar Pradesh, Daman and Diu, and Rajasthan are some of the major states in India that do not levy professional tax.

Professional Tax Slabs and Rates

The rates of professionals vary across different states in India vary. However, most states follow a slab-based structure. Here are examples of professional tax rates from 5 major states in India:

Suggested Read: 10 Tax Saving Tips for Business Owners in India

Exemptions in Professional Tax

Exemptions from professional tax are specific to the state that is levying the tax. However, there are several categories of individuals and entities that are usually exempt across various states. These include: -

• Members of the Indian Armed Forces.
• Individuals suffering from a mental or physical disability, like blindness, deafness, etc.
• Parents of a child suffering from a mental or physical disability.
• Charitable hospitals that are located in places that come below the taluk level.
• Temporary workers who are employed in a factory.
• Individuals who are running an educational institute, teaching classes up to 12th standard or pre-university, in respect of their branches.
• Foreign individuals who have been employed by the state in question.
• Individuals over the age of 65 years.
• Women solely engaged as agents under the Mahila Pradhan Kshetriya Bachat Yojana by the Government of India.

How to Register for Professional Tax?

You can register online on the official commercial tax department website of your state.

• Determine if you or your business is liable for professional tax in your state.
• Identify if you need a Professional Tax Enrolment Certificate (PTEC), which is for business owners and self-employed professionals, or if you need a Professional Tax Registration Certificate (PTRC) as an employer.
• Gather the required documents beforehand. Generally, you will need your PAN card, proof of identity, business documents, proof of the principal place of business, bank account details, and employee salary details (for employers).
• Fill out the online application form on your state’s official commercial tax department website and upload the required documents before submitting it.
• Your application and documents will be verified by the tax authorities.
• You will receive your Professional Tax Enrolment or Registration Certificate, which can be downloaded directly from the portal in most states.

Consequences of Not Paying Professional Tax in India

All individuals falling under the tax ambit are required to comply with the tax provisions properly. Timely property tax payments do not help improve your CIBIL score directly. However, failing to make timely payments and incurring a tax lien can have a lasting negative impact on your financial profile.

Specific consequences of non-payment are determined by the laws of different states, but generally include:

• Fines and penalties for non-compliance issues, like failure to register, late payment, late filing of returns, etc.
• Interest is charged on the overdue tax amount. The interest is accrued from the due date up until the full payment has been made.
• Tax authorities are allowed to recover unpaid tax, interest and penalties. Recovery proceedings may involve seizing assets or attaching bank accounts.
• Continued non-payment of tax or wilful evasion can lead to legal action, like issuance of legal notices and even prosecution in serious cases.
• Non-compliance can lead to disruptions of a certified professional’s business or practice. It may also damage the reputation of the individual or company with clients and regulators.
• Late filing may also lead to the loss of certain benefits, like the ability to carry forward losses to set off against future income.

Suggested Read: Understanding Tax Deductions: What You Can and Can't Claim

Understanding the concept of professional tax is important for all individuals to ensure that they are complying with all the tax-related rules and regulations in their state. For state-specific information about professional tax due dates and deadlines, you should visit your state’s official commercial tax department website.