Professional Tax (P Tax) - Tax Rates, Applicability & Exemptions

What is Professional Tax (P Tax)?

Every citizen who earns their livelihood through any form of employment is subject to professional taxes imposed by the state government. In short, every single earning individual must pay this tax. The calculation and amount collected can vary from state to state, but 2500 rupees is the maximum amount per year.

The tax is not just imposed on professionals. The tax is based on the income of the profession, trade, or employment. Employers, freelancers, professionals, etc. are liable for paying this tax if their income exceeds a certain threshold, if any.

For the purpose of the Income-tax Act, 1961, professional tax is a deductible amount and can be deducted from taxable income.

Under Article 246 of the Indian Constitution, only Parliament can make laws regarding the Union List, including income taxes. States are only permitted to make laws pertaining to the Concurrent and State lists.

Professional Tax in India

In India, various state governments charge a professional tax. Individuals in various professions pay tax on their income. As per Article 276, Clause 2 of the Indian Constitution, the government of India assigned the duty to collect professional tax to the states in 1949. Professional tax is very similar to income tax. There is one difference between the two: the state government charges professional tax whereas the Central government charges income tax.

To begin with, when it was introduced, Rs. 250 was considered professional tax. In 1998, the amount was increased to Rs. 2500. The state government has tried to increase the professional tax from Rs. 2500 to Rs.7000 over the past few years. Nevertheless, the Indian government has not lowered the amount so far, and its maximum remains the same.

Why Does Professional Tax Differ for Different States?

Due to the fact that it is a state-imposed tax, it tends to vary from state to state. The professional tax is deducted according to the slabs that each state declares. The professional tax may also not be charged by some states or union territories. Usually it is paid using 12 equal monthly instalments, with the exception of the one for February being higher than the others.

In some cases, sources of income falling under different sectors may also be subject to a separate tax. For instance, someone operating a transportation business may have to pay a professional tax of approximately Rs 50 per month per vehicle, and the tax may be capped at Rs. 1,000 per year in the other states.

Professional Taxes - Who Collects Them?

Employers collect professional tax from monthly salaries.

Once collected, the professional tax is paid by the employers to the government. Otherwise they can be fined if they don't collect or pay them. Professional tax must be paid by you if you do not work for anyone else.

Professionals without an employer can register by filling out an application form. The individual will receive a registration number once the form is received. The professional tax can be paid at banks using the registration number. Moreover, certain states also provide tax rebates to professionals who pay their taxes in a lump sum for several years at a time; so, it is worth checking with your state about its professional tax laws.

Applicability of Professional Tax (P Tax)

The following entities and individuals are subject to P Tax:

• Companies
• Firms
• Surveyors
• Tax consultants
• Management consultants
• Medical representatives such as doctors, medical consultants, and dentists
• LLPs
• Contractors
• Architects
• Engineers
• Insurance agents
• Corporation
• Societies
• HUF
• Associations
• Clubs
• Legal practitioners such as solicitors
• Chartered Accountants
• CS

Professional Tax Rate

Professional tax being levied by the State Government, is different in different states. Every state has its own laws and regulations to govern the professional tax of that particular state. However, all the states do follow a slab system based on the income to levy professional tax.

A further provision of Article 276 of the Constitution allows for a maximum cap on professional tax of Rs 2,500, above which no tax can be levied.

Consequences of Violating the Professional Tax Regulation

The amount of penalty or penal interest may vary depending on the state laws, but all states that enact professional tax legislation will impose a penalty for not registering.

The failure to pay and file the tax return within the specified due dates also carries penalties.

Professional Tax Slabs in Various States

Here is a list of the various tax slabs for various states and union territories in India.

Professional Tax in Maharashtra

For the financial year 2020-21, the government of Maharashtra also revised its professional tax slab rates. In Maharashtra, the following are the professional tax slab rates for salaried and self-employed professionals.

In addition, the Maharashtra State Government granted special privileges to women professionals. The provision states that women employees earning up to Rs.10,000 per month will not have to make professional tax (p tax) payment on their salary. In the financial year 2015-2016, this exemption was introduced.

Maharashtra Professional Tax Penalty

Under the following circumstances, Maharashtra charges a penalty:

• Delay in registering for professional tax
• Incorrect information provided when enrolling in professional tax.
• Professional tax payment after its due date.

Professional Tax in Karnataka

In Karnataka, professional tax is imposed by the Karnataka Tax on Professions, Trades, Callings and Employment Act 1976. According to the state, there are the following wage/salary earning slabs:

What is the process for paying professional tax in Karnataka?

Professional tax is deducted from salaried employees' salaries each month and deposited with the concerned authority. Self-employed professionals who are not employed by any organisation must pay this tax by contacting local P Tax offices established to collect it.

Karnataka Professional Tax Penalty

Professional tax in Karnataka is charged at 1.25% per month if it is not paid on time. A late payment penalty of up to 50% of the total outstanding amount can be charged.

Professional Tax in West Bengal

In the following table, you will find the revised rates of West Bengal Professional Tax:

Professional Tax E-payment in West Bengal:

In West Bengal, professional tax can be paid online. For West Bengal professional tax payment online, visit the web portal at wbcomtax.nic.in and click on "e-services". This will lead you to "e-payment" followed by "GRIPS". Those who pay professional tax online and have a valid PAN are eligible to receive a Demat Certificate of Enrolment.

West Bengal Professional Tax Penalty

The West Bengal government imposes professional tax penalty charges under the following conditions:

• An individual fails to pay professional taxes by the due date.
• When a person fails to enrol within 90 days of becoming eligible for professional tax payment.

Professional Tax in Madhya Pradesh

Madhya Pradesh falls under the category of states that charge professional tax. Given below is the professional tax slab rate for Madhya Pradesh for the year 2019-2020.

The state of Madhya Pradesh levies professional tax of Rs.202 for the first 11 months and professional tax of Rs.212 for the last month for individuals with a salary above Rs.15,000.

Professional Tax in Tamil Nadu

The following table shows the professional tax employees in TamilNadu.

What is the process for registering for professional tax in Tamil Nadu?

Tamil Nadu tax department must receive the registration certificate from the employer within 30 days of hiring staff for their business. If the individual has more than one business, they must apply for each business separately.

Professional Tax in Andhra Pradesh

The following is the Andhra Pradesh professional tax rate based on salary.

Andhra Pradesh Professional Tax Due Date

In AP professional tax, payment due date is based on certificate of enrollment, which is based on the timeframe. The professional tax must be paid by 30th June if the certificate of enrollment is obtained on or before 31st May and paid within a month of the enrollment date.

Andhra Pradesh Professional Tax Penalty

In the case of late payment, the penalty shall not be less than 25%, but may not exceed 50% of the tax owed.

Professional Tax in Gujarat

The following table shows the professional tax slab rates in Gujarat.

What is the procedure for registering for Gujarat’s professional tax?

Within 30 days of employing staff for a business, the employer must apply for a registration certificate with Gujarat's tax department. If someone owns more than one business, they should apply separately for each business.

Depositing the Tax Amount Deducted

The payment should be made within 15 days of the end of the month if the employer hires more than 20 employees. If the employer has fewer than 20 employees, the payment can be made quarterly. Employees covered by the state government as designated authority can pay in treasury by challan through the bank.

Professional Tax in Odisha

The following are Odisha's professional taxes.

Professional Tax in New Delhi Region

Apart from Delhi, almost all states in India levy professional taxes. Despite the Municipal Corporation of Delhi trying to impose a professional tax for employees or individuals earning income from various sources in Delhi, the proposal was rejected by the standing committee of the Municipal Corporation of Delhi. Therefore, working professionals in Delhi do not have to pay any professional tax. Delhi has no professional tax slab rates.

Exemption in Professional Tax

Individuals listed below do not have to pay Professional Tax:

• Those who operate educational institutions that teach students up to the 12th grade.
• Those who serve in the Central Para Military Force (CPMF).
• A person who has had a sterilization operation and has one child. All the appropriate documents must be submitted.
• Any ex-serviceman who falls under Schedule I (SI No.1)
• An individual who has a disability of at least 40%. A certificate proving this must be submitted.
• Owners of a single three-wheeler or taxi with a permit to carry goods.
• Individuals who are deaf, dumb, or blind and earn a salary.
• Civilians who are members of the Armed Forces, including both combatants and non-combatants. However, the Army Act must apply to the Armed Forces.
• State-employed foreign technicians.
• Hospitals that provide philanthropic and charitable care in areas that are below the taluk level.

How is professional tax collected and paid?

Department Responsible for Collecting Taxes

The Commercial Tax Department collects professional tax. The Commercial Tax Department of the respective state collects it, which later ends up in the Municipality Corporation Fund.

Professionals Responsible for Paying Taxes

• A person who employs an employee is responsible for deducting, submitting, and paying professional tax to the State Government, subject to the state's laws providing any monetary threshold for that purpose.
• The person who is also carrying on a trade/profession or an employee (a corporation, partnership firm, sole proprietorship, etc.) has to pay professional tax on that trade/profession, subject to the state's laws providing any monetary threshold for that purpose.
• To be able to deduct tax from his employees and pay the tax, such an employer must obtain a professional tax enrolment certificate and a professional tax registration certificate. Depending on the law of the state, each office may also be required to register separately.
• Those who operate a freelancing business without any employees must also register, subject to the state's laws providing any monetary threshold for that purpose.
• The professional tax levy is nevertheless subject to the exceptions provided to certain categories by the State. For instance, parents and guardians of people suffering from mental retardation and blindness, among others, are exempt from levying Karnataka professional tax.

Is it possible to get professional tax exemption?

You may be able to receive a tax exemption on relocation allowances you receive from your employer (whether moving from one state to another or within the same state from one city to another).

Relocation allowances are taxable under the salary income head if they are paid by the employer. According to the Income-Tax Act, only movers and packers, as well as train/air tickets for relocating family members and hotel accommodations for up to 15 days are exempt from income tax.

To receive a tax exemption while moving to a new place, the employee must keep all documents related to claims and payments incurred during the transition, along with proof of payments made. Moreover, the employer must claim these expenses in its books under the heading of business expenses. The difference between the actual expenses incurred and the relocation allowance paid by the employer is taxable.