If you ever pay close attention to your payslips, you will notice that there is a deduction every month under the category of ‘Professional Tax’. This deduction takes place along with HRA, basic salary, and conveyance charges (if applicable). This deduction is generally to the tune of INR 200 per month or so and is called the professional tax. This tax is generally different for each state and in certain places you may notice that there is no deduction made under this heading. So the question is, what is professional tax?
What is Professional Tax?
Profession Tax is a direct tax that is levied on persons earning an income by way of either practicing a profession, employment, calling, or trade. Unlike income tax which is levied by the Central Government, professional tax is levied by the government of a state or union territory in India. The majority but not all of the Indian states impose professional tax. While states like Karnataka and Maharashtra have professional taxes, there is no such tax applicable in Delhi and Haryana. The tax calculation and amount collected may vary from one state to another, but it has a maximum limit of INR 2500/- per year.
Professional Tax Registration and Returns
Professional Tax Registration is mandatory within 30 days of employing staff in a business or, in the case of professionals, 30 days from the start of the practice. Professional tax needs to be deducted from the salary or wages paid amount. Application for the Registration Certificate should be made to the assessee’s state tax department within 30 days of employing staff for his business. If the assessee has more than one place of work, then the application should be made separately to each authority with respect to the place of work under the jurisdiction of that authority.
If an employer has employed more than 20 employees, he is required to make the payment within 15 days from the end of the month. However, if an employer has less than 20 employees, he is required to pay quarterly (i.e. by the 15th of next month from the end of the quarter).
Exemptions
There are exemptions provided for certain individuals to pay Professional Tax under the Professional Tax Rules.
The following individuals are exempted to pay Professional Tax:
- Parents of children with permanent disability or mental disability.
- Members of the forces as defined in the Army Act, 1950, the Air Force Act, 1950, and the Navy Act, 1957 including members of auxiliary forces or reservists, serving in the state.
- Badli workers in the textile industry.
- An individual suffering from a permanent physical disability (including blindness).
- Women exclusively engaged as agents under the Mahila Pradhan Kshetriya Bachat Yojana or Director of Small Savings.
- Parents or guardians of individuals suffering from a mental disability.
- Individuals, above 65 years of age.
Who is Responsible for Deducting Professional Tax?
The employer is responsible for deducting professional tax from the salaries of his employees and paying the amount collected to the appropriate state government. An employer has to furnish a return to the tax department in the prescribed form within the specified time along with proof of tax payment.
Consequences
- Fails to Get Registration
- He will be liable to a penalty for the period during which he remains unregistered.
- Fails to Deposit to the Government/ Late Deposition
- He will be liable to a penalty for the period during which he remains unregistered.
- Non-Deposition of Amount.
- The officials have the power to recover such amount along with applicable penalty and interest from the assets of such defaulters. Moreover, they can attach his bank account also. In serious cases, prosecution cases also can be filed.
Wealthcafe Advice
People need to understand the professional tax being levied in their state and plan since there are penalties in store for defaulters. Regardless of whether an individual is engaged full-time with an organization or not, they need to be aware of the professional tax liabilities in their state.