Professional tax or P-tax is a direct tax that 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.