All you need to know about Professional Tax

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Many employees might well be aware of the word 'professional tax' as it would have been stated in form 16 given to them. But all of them may not understand what it is and why it occurs in their payslips or Form 16 as a deduction from their salary earned. 

Therefore, this article attempts to provide a clearer understanding of what 'professional tax' is and why it is deducted and is borne only by the salaried class.

What is a professional tax, and who levies it?

The term 'Professional tax' may be one of those words that do not fully express the meaning. It is not only a tax imposed solely on professionals, as the name implies. It is a tax on all sorts of occupations, trades, and jobs. It is assessed based on the wages of that occupation, business, and employment. It shall be imposed on workers, on individuals engaged in industry, including freelancers, professionals, etc., subject to income above the monetary threshold, if any.

Under Article 246 of the Indian Constitution, only Parliament has the exclusive power to make laws relating to the Union List, including income taxes. The state has the right to make laws only in terms of the Concurrent and State lists. However, while professional tax is a form of income tax, it is imposed by the Government of the State (not all states in the country chose to levy professional tax). 

The Government of the State is also empowered to make laws concerning professional tax. However, the income tax is referred to in Article 276 of the Constitution of India, which deals with taxes on occupations, trades, professions, and jobs.

It should be remembered that professional tax is a deductible sum for the Income Tax Act, 1961 and maybe deducted from taxable income.

What is the professional tax rate?

The professional tax that is levied by the Government of the State is different in different states. Each state has its laws and regulations regulating the professional tax of that state. However, all states do follow a slab scheme based on income from the levying of skilled taxes. 

Article 276 of the Indian Constitution empowers the Government of the state to levy a professional tax and also provides for a maximum limit of INR 2500, above which no individual may be charged professional tax.

Who is responsible for paying professional tax?

In the case of workers, the employer is the individual responsible for deducting and paying professional tax to the Government of the State according to the monetary threshold, if any, as provided for in the legislation of the state concerned. Besides, the employer (corporate, partnership, sole proprietorship, etc.) who is also a person engaged in trade/profession is also expected to repay professional tax on his trade/profession according to the monetary threshold if any is provided for in the legislation of the respective state. 

In that case, the employer must register and receive both a professional tax identification certificate in order to be able to pay professional tax on his trade/profession and a professional tax enrolment certificate in order to be able to deduct and pay the tax on his workers. In addition, separate registration may be required for each office, depending on the legislation of the respective State. 

Persons engaged in freelance business without any workers shall also be required to register themselves subject to the monetary threshold, if any, provided for in the legislation of the State concerned. However, a professional tax is subject to the exemption given to such categories by the State concerned. 

For eg, parents or guardians of any person suffering from mental retardation, blind persons, among others, are exempted from the Karnataka professional tax levy.

Who collects the professional tax?

It is obtained by the commercial tax department of the respective States, which eventually enters the municipality's fund.

What is the procedure of paying the professional tax?

Again, this is a state-specific question. In general, however, a professional tax can be charged either online or offline. Furthermore, depending on the requirement of the State, the professional tax return must also be filed at prescribed intervals.

Are there any consequences if you violate professional tax regulations?

Although the exact amount of penalty can depend on the legislation of the particular State, a penalty can be imposed by all such States for not registering as soon as professional tax legislation becomes applicable. Furthermore, there are also provisions for failing to make a payment within the due date and for failing to file a return within the defined due date.

For example: In Maharashtra INR 5/day is levied as a penalty for delay in registration, interest @ 1.25% per month of delay in payment, a penalty of 10% of the amount of tax in case of delay in payment of skilled tax, INR 1000 – INR 2000 penalty for delay in filing the return.

Conclusion

Professional tax is a tax on all sorts of occupations, trades, and jobs. It is assessed based on the wages of that occupation, business, and employment. 

The state governments have the right to levy and make laws regarding the professional tax. As a result, the tax rate, the collection procedure, and the penalty for failing to pay the tax differs from one state to another. 

Professional tax is collected by the commercial tax department and maybe collected online or offline. To sum up, the specifics related to professional tax vary from one state to another but nevertheless it is an important part of every earning citizen's life.

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