What kind of professionals must apply for Professional Tax in India?
Tax season is fast approaching and everyone, especially first time taxpayers, are preparing themselves. For first time taxpayers, there is a lot to learn and figure out, and it might even get overwhelming at times. The taxes you pay depend mainly on your occupational status, and the amount of money you have earned in the year. Today, we have a look at professional tax, which is actually not just for professionals.
What is professional tax?
It’s a direct tax that is levied on individuals earning an income by way of either practicing a profession, employment, or trade. But this tax for professionals is unlike the income tax which is levied by the Central Government. It’s levied by the state government or union territory.
How does professional tax work?
Like every direct tax formula, Professional Tax in India has its formula and the slab rate is set by the individual state or union territory. According to Article 246 of the Constitution, only Parliament has power to frame laws for subjects on the Union List that includes tax on income.
However, in case of the State and Concurrent lists, the state can make it optional to levy professional tax in India. This tax is deductible from your taxable income. Thus most of the Indian states and union territories levy professional tax since it is a source for their revenue. Professional tax in India is collected by the Commercial Tax Department of the respective state.
What is the rate of tax for professionals in India?
As mentioned before, the slab rate varies from state to state. Some of the states which currently impose a professional tax in India are Maharashtra, Gujarat, Andhra Pradesh, Kerala, Tamil Nadu, Karnataka, Bihar, Assam, Madhya Pradesh etc. Here is how the slab works in a few key states.
Up to Rs. 7,500 : Nil (for male)
Up to Rs. 10,000 : Nil (for female)
From Rs. 7,501 to Rs. 10,000 : Rs. 175 (for male)
Rs. 10,001 and above : Rs. 200 for 11 months + Rs. 300 for 12th month
Up to Rs. 5999 : Nil
Rs. 6000 to Rs. 8999 : Rs. 80
Rs. 9000 to Rs. 11999 : Rs. 150
Rs 12000 and above : Rs. 200
Up to Rs. 15,000 : Nil
Rs. 15,001 onwards : Rs. 200
Who pays and who collects Professional Tax?
For employees, their employer is responsible for deduction and payment of professional tax to their respective State Government as per the rate slab, and also for registering and obtaining professional tax registration certificates. Individuals involved in freelance occupations without employees also need to register for this tax, as per the slab provided by the state government.
Do keep in mind, professional tax is subject to exemptions provided by respective states to specific categories.
What is the maximum limit for professional tax in India?
Although the tax is levied depending upon the income of the individual, the maximum amount any State can levy as Professional Tax is restricted to Rs. 2,500.
Is there any deduction available for Professional tax paid in India under Income tax Act, 1961?
Yes, there is deduction available of professional tax paid under Section 16 of Income Tax Act, 1961
What happens if one doesn’t pay professional tax?
This factor is also state-specific. Each state has its own penalty rates for failure to register for professional tax in time and delay in filing the returns. There is also a penalty for missing the due date, which again depends on the state legislation.
For example: In Maharashtra, penalty for late registration is Rs 5/day. There is also an interest of 1.25%/month for late payment, a 10% penalty on the tax amount in the case of non-payment/delay of professional tax, and a penalty of Rs.1000 –2000 for late return-filing.
Now, you know all about the ‘professional tax’ column on your salary slip. If you are a freelancer, make sure to apply for and pay professional tax on time to avoid consequences. As far as tax saving is concerned, that’s a worry you have only with central income tax.
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