Professional Tax in India

In India, it is important for business owners to follow different legal requirements. One such requirement is the professional tax, a direct tax imposed by state governments and paid by employers and employees. This guide provides all the necessary information for complying with professional tax in India, including registering and calculating professional tax on salary.

What is Professional Tax?

Professional tax in India is a tax collected by state governments. It applies to both salaried employees and self-employed professionals, and the rates and rules vary by state. The tax is based on income levels, so it’s important to understand how it applies to ensure tax compliance.

Overview of Professional Tax Slabs and Rate Across Indian States

Here’s the consolidated table with the states and their corresponding professional tax rate slab:

Note that the professional tax rate slab varies according to the individual’s income. For Maharashtra, the employer needs to deduct 300 for February. For the rest of the months, the deduction will be 200. For states wherein the range Nil—₹208-212 has been mentioned, the employer needs to deduct 208/— for 11 months, and the 12th month, 212/—will be deducted.

Who Is Liable to Pay Professional Tax in India?

In India, salaried employees and self-employed professionals need to pay corporate tax. If you’re a salaried employee, your employer will deduct this tax from your salary each month and then submit it to the government. Employers need to obtain a Registration Certificate from the relevant authorities to do this legally.

Self-employed persons, including those in trades or professions, also contribute to tax. However, their process involves direct payment to the state government. A Certificate of Enrolment from the state’s prescribed authority is necessary, proving their eligibility and compliance.

Each state and Union Territory in India has its own rules and tax rates for professional taxes. For example, in Gujarat, the Gujarat Professional Tax is managed by the Gujarat Commercial Tax Department. This ensures that the amount of tax collected is based on an individual’s income, making tax collection fair and structured across different professions.

Professional Tax Exemption in India

Not everyone is required to pay professional service tax. Certain groups receive exemptions, ensuring fairness. These include parents of children with disabilities and individuals over 65. People suffering from permanent physical disabilities, including blindness, are also exempt. As defined by specific acts, military members do not pay tax.

Temporary textile workers and women agents under specific government schemes are spared. These exemptions recognize individuals’ varying financial burdens and contributions to society. Understanding who is exempt in professional tax is crucial for accurate compliance and financial planning.

States and UTs Exempt From Professional Tax

Here are the states and UTs that do not charge professional service tax in India

• Andaman and Nicobar Islands
• Arunachal Pradesh
• Chandigarh
• Chhattisgarh
• Dadra and Nagar Haveli
• Daman and Diu
• Delhi
• Goa
• Haryana
• Himachal Pradesh
• Jammu and Kashmir
• Ladakh
• Lakshadweep
• Rajasthan
• Uttar Pradesh
• Uttarakhand

How to Pay Professional Tax in India?

The process for professional tax payment varies by state, reflecting differing local laws. States offer online and offline methods, accommodating various preferences. Businesses and professionals must consult their specific state’s official portal for guidelines. Monthly, quarterly, or annual payment frequencies depend on the state’s mandate.

The steps to file returns are distinct for each state. Ensuring timely payments is crucial to maintain compliance and avoid penalties.

How to Register for Professional Tax in India?

When registering for business tax in India, visit your state’s professional tax department website. Look for the option to download the Professional Tax Registration Certificate and enter your registration number or PAN to access it.

Maintaining a copy of your Professional Tax Registration Certificate is critical for legal compliance. If downloading is difficult, the professional tax department can assist.

For a smooth registration process, prepare the following documents:

• Self-attested copies of PAN.
• Address proof of business, like recent utility bills, ownership documents, or NOC from the premises owner.
• Financial statement of the business.
• Salary details of employees.
• Two photographs of the Authorized Signatory.
• Canceled cheque of the business’s current account.

If the applicant represents a partnership firm, LLP, or company, additional documents are needed:

• Certificate of Incorporation, LLP Agreement, or Registration Certificate.
• Memorandum and Articles of Association.
• Board resolution or statement of consent from partners.
• Self-attested copies of addresses and photo IDs of partners, proprietors, or directors.

Ensuring all required documents are in order simplifies the Indian professional tax registration process. Now that you know the registration process, here is how to calculate professional tax on salary in a simplified manner.

How Do You Calculate Professional Tax on Salary?

Calculating professional tax in India starts with your monthly gross salary. Firstly, deductions such as EPF contributions, gratuity, and leave deductions are subtracted. The remaining income after these deductions is then subject to tax.

As your gross salary changes, so does the amount of tax owed. It’s important to note that the exact tax rate can vary from one state to another due to different states’ tax slabs and rates.

Filing Professional Tax Returns in India

Filing professional tax returns is an essential compliance activity for both employers and employees within India. The process varies slightly from state to state, but the fundamental steps remain consistent:

• Identify the applicable slab and rate: Each state has tax slabs and rates based on income and profession.
• Collect necessary documents: Salary slips, proof of previous professional services tax payments, and other relevant documentation.
• Prepare the return: Use the format provided by your state’s tax authority to compile your return accurately.
• Submit the return: With the required documents, submit your return to the state authority’s designated office.
• Pay the tax: If you owe professional tax, pay the due amount with your return.
• Obtain acknowledgment: Always get a confirmation of your return filing and tax payment for your records.

Adherence to these steps on time is crucial to ensuring compliance with professional service tax regulations, avoiding penalties, and upholding legal responsibilities. Staying informed and organized is key to navigating this process smoothly.

What are the consequences of violating professional tax regulations in India, particularly regarding late payment penalties?

Regarding professional tax in India, meeting deadlines is pivotal to avoid penalties. Each state dictates its penalties for late registration, payment delays, and missed return filings. For instance, Maharashtra imposes a Rs 5 daily penalty for late registration

A payment of late tax incurs an interest of 1.25% per month. Also, there’s a 10% penalty for delays or non-payment of the unpaid tax amount. Late return filings can lead to fines ranging from Rs 1000 to Rs 2000.

Wrap Up

Professional tax in India is essential for both the employer and the employee. This guide covers the essentials, from liability and exemptions to slabs by state and registration. In addition, it covers the tax laws put in place by states to ensure compliance, including fines and charges incurred in the case of a failure to comply.

FAQs

What is Professional Tax in India?

Professional Tax is a tax levied by the state governments in India on individuals earning an income from salary or practicing professionals such as doctors, lawyers, and chartered accountants.

Who is Responsible for Paying Professional Taxes?

Employees and professionals in India are required to pay professional service tax. Employers are responsible for deducting the tax from salaries and depositing it with the state government.

How to calculated taxes in India?

The amount varies by state but is typically a slab rate based on the individual’s income level, with a maximum limit set by the government.

Are there any penalties for late payment?

Yes, late payments in tax can attract penalties and interest, which vary from state to state.

Is it Applicable in All Indian States?

No, it is not applicable in all states. Only certain states and union territories impose this tax. It’s essential to check the specific rules applicable in the state where the individual works or resides.