Professional Tax in India: Everything Explained

If you look at your salary slip, you can find a breakup of your basic salary and notice a small deduction mentioned on it. This deduction is known as professional tax. The amount of this tax may differ from one State to another.

Want to know more about professional tax?

Let’s start from the basics!

Professional tax or P-tax is a direct tax that the State Government imposes on individuals who earn either by practising a profession, employment, trade or calling or running a freelancing business.

The State Government deducts professional tax under section 16 (III) of the Income Tax Act, 1961. As per this section, the professional tax is allowed for deduction from an individual’s gross salary while filing income tax returns.

Common people may get confused thinking this tax is applicable only for professionals. Contrarily, this tax is for all earning individuals. You can see professional tax at the deduction side of your payslip. The amount deducted is ₹200 and, as stated earlier, can vary from one State to another. However, the upper limit is set at ₹2500 per annum per individual, which is also the maximum limit State Government can levy.

Please note, not all States levy professional tax. There are some states, including Arunachal Pradesh, Rajasthan, and Haryana, that do not levy this tax.

Now that the definition of professional tax and persons responsible for paying it is clear, let’s learn about the concerned authority and applicability of it.

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The Commercial Tax Department of respective States collects professional tax which ultimately reaches to the fund of municipality corporation.

In the case of employees, employers collect professional tax every month from monthly salary. Then, they pay this tax to the Government. However, if they fail to pay this tax timely, penalty charges will be imposed on them for not collecting professional tax or paying it to the Government.

Self-employed individuals are liable to pay this tax themselves. Further, professionals who are not working with an employer anymore must register for it through a form. After the form is received by the concerned authority, a registration number will be generated through which they can pay this tax.

Please note certain States also provide a rebate on professional tax provided the tax is paid in a lump sum for a few years. Therefore, it is imperative individuals must be aware of various rules applicable to respective States.

Currently, there are several online calculators available, which makes the calculation process error-free and less time-consuming.

Professional tax calculation depends on two factors, namely State and income. As there are several states that do not impose a professional tax, individuals residing there need not calculate this. The following table will help to understand this calculation process.

The applicability of professional tax is mentioned below,

• Individual
• Firm
• Company
• Cooperative Society
• Association of Persons or a body of individuals
• Hindu Undivided Family (HUF)
• LLPs
• Clubs
• Legal practitioners such as solicitors
• Contractors
• Medical representatives such as doctors, medical consultants, and dentists
• Architects
• Chartered Accountants
• CS
• Surveyors
• Engineers
• Insurance agents
• Tax consultants
• Management consultants

Below is a list of individuals who are exempted from professional tax.

• Individuals involved in Central Para Military Force (CPMF)
• Ex-servicemen.
• Individuals who have 40% disability. Here, they have to submit the relevant certificate.
• Deaf, dumb or blind individuals who are earning a salary.
• Individuals running educational institutions where students of up 12th standard are taught.
• Civilian non-combatant or combatant members from the Armed Forces.
• Individuals who have a permit for a single three-wheeler or a taxi for carrying goods.
• Technicians who have come from different countries but are employed by respective States.

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The professional tax payment process is easy. Here, you have to select a state first. Suppose you are a working individual in Karnataka and want to pay this tax online, then you have to follow the steps mentioned below,

• Step-1- Visit the official website of the Karnataka Commercial Tax Department and click on KTP (Karnataka Professional Tax).
• Step-2- On the new webpage, choose between self-employed professional or registered employee. Let’s say you have selected a registered employee.
• Step-3- Provide Professional Tax Registration Number, company or firm name and other details.  Select the period of your payment, i.e. monthly, annually, or as specified.  Select the year and month for which the payment is made. Also, enter tax amount and penalty amount (if any).
• Step-4- Provide bank details and enter your mobile number. Click on ‘Enter’, and after verifying the provided information, click on ‘Submit’.
• Step-5- Click on ‘Click here for Payment’. Then login with credentials and pay professional tax.

Save the challan for future reference.

If earning individuals do not pay professional tax, they have to pay penalty charges. Here, the penalty amount or penal interest depends on the respective State. Hence, it can vary from one State to another. Additionally, the State Government may levy penalty charges for non-registration and late return filing.

Read the details carefully and pay professional tax before the due date.