What is professional tax?

All individuals who earn a living must pay professional tax. Read more to learn about profession tax. 

Who levies professional tax?

Tax on income is included in the Union List, subject to laws made by Parliament under Article 246 of the Constitution of India. Legislation can be enacted only in relation to concurrent and state lists. Although professional tax is a tax on income imposed by the state, not all states in the country impose professional tax. State governments are empowered to make laws relating to professional tax under Article 276 of the Constitution of India, which includes tax on professions, trades, callings and employment, though it is a tax on income. As per the Income Tax Act, 1961, professional tax is exempt from taxable income.

Who is responsible for payment and collection of professional tax?

Employers are responsible for collecting professional taxes from their employees. According to state law, the employer collects and pays taxes to the business tax department. A business owner who works for an employer is responsible for paying professional taxes. It can be a corporate, partnership or sole proprietorship. If the state government provides the monetary limit to pay the professional taxes, they have to pay it. Employers must register themselves and obtain a professional tax registration certificate. They will need a professional tax registration certificate, which will enable them to deduct tax from their employees and pay it to the commercial tax department. If the business is to operate in multiple states, separate registration is required in each state. Freelancers are responsible for professional taxes in their respective states based on any monetary limits set by state law. Besides registering with the state, they have to pay income tax according to their income limit.

Professional tax: What is the rate?

In different states, different levels of business taxes are levied by the state government. Each state’s professional tax is governed by laws and regulations. All states have a tiered system where they levy a professional tax based on income. Additionally, Article 276 of the Constitution gives the states the power to levy professional tax.

Professional Tax: Violation of Regulations

A business must register as per professional tax regulations. In addition, it is tax levied according to the income limit. Failure to file or pay this tax will attract penalties. Penalties may also be imposed if payment is not made on time. Non-filing taxes may result in penalties in some states. The amount of penalty varies from state to state.