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Many salaried employees are likely to be familiar with the term 'professional tax,' as it appears on their payslips/Form 16. However, they may or may not know what it is and why it appears as a deduction from their salary on their payslips/Form 16. As a result, this article is an attempt to provide a clearer picture of what 'Professional tax' is, why it is deducted, and whether it affects only the salaried class.
What is Professional tax and who levies it?
The term 'Professional tax' may be one of those that does not fully convey the true meaning of the term. Contrary to what the name implies, it is not a tax levied solely on professionals.
Professional tax is a tax levied on all professions, trades, and employment that is based on the income of such profession, trade, or employment. It is levied on employees, self-employed individuals, freelancers, professionals, and others who earn more than the monetary threshold.
According to Article 246 of the Indian Constitution, only Parliament has the exclusive power to make laws pertaining to the Union List, which includes income taxes. Only the Concurrent and State lists are subject to legislation by the state.
Professional tax, on the other hand, is a type of income tax levied by the state government (not all states in the country chose to levy professional tax). The State Government is also empowered to make laws regarding professional tax, despite the fact that it is a tax on income, under Article 276 of the Indian Constitution, which deals with tax on professions, trades, callings, and employment.
It should be noted that professional tax is deductible under the Income-tax Act of 1961 and can be deducted from taxable income.
Professional tax rate
The professional tax levied by the state government varies by state. Every state has its own set of laws and regulations that govern professional taxes in that state. To levy professional tax, however, all states use a slab system based on income.
Furthermore, Article 276 of the Constitution, which empowers the State Government to levy professional tax, specifies a maximum cap of Rs. 2,500/- above which professional tax cannot be levied on any person.
We have attached rates of professional tax applicable in Assam. (Schedule 1)
Who is responsible to collect and pay professional tax?
The Commercial Tax Department is in charge of collecting professional tax. It is collected by the commercial tax departments of the respective states and ends up in the municipal corporation's fund.
Persons responsible to pay professional tax:
In the case of employees, an employer is the person who is responsible for deducting and remitting professional tax to the State Government, subject to any monetary threshold set by the respective State's legislation.
An employer (corporations, partnership firms, sole proprietorships, etc.) who is also a person carrying on trade/profession is required to pay professional tax on his trade/profession, subject to any monetary threshold set by the respective State's legislation. In such a case, the employer must register and obtain both a professional tax registration certificate and a professional tax enrolment certificate in order to pay professional tax on his trade/profession and to deduct and pay the tax from his employees. Furthermore, depending on the legislation in each state, separate registration for each office may be required.
Persons who carry on a freelancing business without employing anyone are also required to register, subject to any monetary threshold imposed by the respective State's legislation.
A professional tax levy, on the other hand, is subject to the exemption provided by the respective State to certain categories.
What are pre-requisites for applying P-Tax registration?
Valid mail id (The mail id receives instant mail which contains login cred for the portal)
Valid phone number
Applicant Details (Name, fathers name and designation)
Business constitution docs (like Trust Deed, certificate of incorporation, society registration certificate etc)
Address proof (like electricity bill, water bill etc)
PAN card
Photograph
Trade license
Registration certificate, if reg under any other indirect tax act (like GST, VAT etc)
Authorization letter from board for applying the registration.
Apart from these, general answers are needed for the below questions:
Average No. of Workers during the year in the factory
Average No. of Employees employed in the establishments
Vehicle details (if any)
Description about the business
Date of commencement.
Once the above mentioned documents are received and have been applied at the portal, the office of the officer might take 7-10 days for approval of the registration.
Disclaimer: The rates listed were last updated on February 1, 2023, to the best of our knowledge. Variations may occur as a result of government updates. Please keep in mind that we are not responsible for any incorrect information.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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Hemant Bardia
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