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Are There Tax Implications When Moving From One State to Another?

While moving from one state to another, it is important to be aware of the professional tax implication. Professional tax, unlike the income tax which is levied by the Central Government, is charged by the government of a state or union territory. Much like a toll tax, professional tax is imposed on account of the infrastructure the state provides so that business can be conducted within its boundaries. Professional tax too is deducted by the employer from the salaries of its employees every month and remitted to the state. The maximum amount of professional tax that can be levied annually is Rs 2,500.

Therefore, while there are no income tax implications while moving from one state to another, there certainly are professional tax implications. As this tax is deducted at the source, the amount deducted from your salary will fluctuate if you move from one state to another.

Profession tax is applicable on the following classes of persons:

  • An Individual 
  • A Hindu Undivided Family (HUF) 
  • A company/firm/co-operative society/association of persons or a body of individuals, whether incorporated or not

What states and union territories do and do not levy professional tax?
List of states and union territories that levy professional tax:Andhra Pradesh, Karnataka, Maharashtra, Tamil Nadu, Assam, Kerala, Meghalaya, Tripura, Bihar, Jharkhand, Madhya Pradesh, West Bengal, Manipur, Mizoram, Odisha, Puducherry, Sikkim, Telangana, Nagaland, Chhattisgarh, and Gujarat.

List of states and union territories that do not levy professional tax:
Arunachal Pradesh, Himachal Pradesh, Delhi, Haryana, Uttar Pradesh, Uttarakhand, Andaman and Nicobar Islands, Daman & Diu, Dadra and Nagar Haveli, Lakshadweep, Jammu & Kashmir, Punjab, Rajasthan, Chandigarh, and Goa.

Are there other implications?
If you have been granted a relocation allowance by your employer (whether moving from one state to another or within the same state from one city to another), it is possible to receive a tax exemption on it. 

If the employer bears the relocation allowance, it is taxable under the salary income head. Only the expenditure incurred on movers and packers by the employee, or train/air ticket fees for relocating family and hotel accommodation up to 15 days, is exempted under the Income-Tax Act.

For an employee to receive a tax exemption while relocating to a new place, he/she should maintain documents, proof of payments, and all other agreements signed with the employer on claims and payments incurred on transfer. Also, the employer will have to claim these expenses in its books of account under the business expenditure head. If the actual expenses incurred are less than what the employer paid as a relocation allowance, the difference is taxable.

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