Introduction to Professional Tax
Professional Tax is a tax levied by the State government by the power vested in them by the Article 276(2) of the Constitution of India. It is levied on income earned in any profession, trade, calling and employment and it is to be paid by the employer directly, i.e., the tax burden ostensibly falls on the employer, and not on the employee. The concept of professional Tax was introduced in 1949. The main difference between Income Tax and Professional Tax is that the former is collected by Central Government whereas the latter is collected by State Government; moreover, the former is paid by the employee and the latter is to be paid by the employer. Initially, the upper limit of paying the professional tax was just Rs.250/-. However, in the succeeding parliamentary sessions, a state minister suggested that the professional tax has become regressive as people with a high salary to have to pay just Rs.250/- as a tax. Regressive tax systems are undesirable as policy tools as they tax both rich and the poor in a similar manner, and hence this gives rise to concerns in terms of social equality. Moreover, with the price rise and other factors, the professional tax has had to be revised upwards. The upward revision of this tax has helped the State Government in raising additional resources.
Professional Tax is mostly levied by State Governments and some Panchayats, Municipal Corporations and local bodies also levy this tax. In 2016, South Delhi Municipal Corporation tried to levy this tax but the proposal was rejected.
Professional Tax Rate:
Section 16 of the Income Tax Act, 1961 provides a deduction to anyone who has paid a Professional Tax to a State Government.
Earlier, the maximum amount payable may not have exceeded Rs.250/- per annum. However, the rate has been revised and now the maximum amount payable is set at Rs.2500/- per annum. The professional tax is usually a slab-amount based on the gross income of the professional. It is deducted from his income every month.
It is applicable in following states:
Gujarat
Karnataka
Chhattisgarh
West Bengal
Andhra Pradesh
Maharashtra
Tamil Nadu
Assam
Meghalaya
Orissa
Tripura
Kerala
Madhya Pradesh
In the case of salaried professionals and wage earners, the tax is deducted from the employee salaries and the employers are liable to pay this tax on behalf of their workmen/employees to the State Government.
Employer’s Responsibility for Professional Tax:
It is the employer’s responsibility to pay the tax to the State Government by deducting the amount from their employees’ salaries. The owner also has to file a return to the Tax Department in the prescribed form along with the proof of tax payment within the specified time. In case the proof of tax payment is not sent along with the forms, the return shall be deemed incomplete and invalid.
Registration:
The employer must apply for the registration within 30 days of the appointment of staff in the business. If the office is in more than 2 states, then different applications need to be sent to the relevant authorities under different states.
The penalty under Professional Tax:
If there is any fault or delay in obtaining Professional Tax Certification Number, the employer will incur a penalty of Rs.5/- per day. In a case of no/late payment, the employer will incur the penalty of 10% of the tax amount. In the case of late filing of returns, a penalty of Rs.300/- per return will be imposed.
Hence it is strongly advised to register for tax at the earliest after employment of employees and comply with the rules set forth by the Tax Department.
Professional Tax is a tax levied by the State government by the power vested in them by the Article 276(2) of the Constitution of India. It is levied on income earned in any profession, trade, calling and employment and it is to be paid by the employer directly, i.e., the tax burden ostensibly falls on the employer, and not on the employee. The concept of professional Tax was introduced in 1949. The main difference between Income Tax and Professional Tax is that the former is collected by Central Government whereas the latter is collected by State Government; moreover, the former is paid by the employee and the latter is to be paid by the employer. Initially, the upper limit of paying the professional tax was just Rs.250/-. However, in the succeeding parliamentary sessions, a state minister suggested that the professional tax has become regressive as people with a high salary to have to pay just Rs.250/- as a tax. Regressive tax systems are undesirable as policy tools as they tax both rich and the poor in a similar manner, and hence this gives rise to concerns in terms of social equality. Moreover, with the price rise and other factors, the professional tax has had to be revised upwards. The upward revision of this tax has helped the State Government in raising additional resources.
Professional Tax is mostly levied by State Governments and some Panchayats, Municipal Corporations and local bodies also levy this tax. In 2016, South Delhi Municipal Corporation tried to levy this tax but the proposal was rejected.
Professional Tax Rate:
Section 16 of the Income Tax Act, 1961 provides a deduction to anyone who has paid a Professional Tax to a State Government.
Earlier, the maximum amount payable may not have exceeded Rs.250/- per annum. However, the rate has been revised and now the maximum amount payable is set at Rs.2500/- per annum. The professional tax is usually a slab-amount based on the gross income of the professional. It is deducted from his income every month.
It is applicable in following states:
Gujarat
Karnataka
Chhattisgarh
West Bengal
Andhra Pradesh
Maharashtra
Tamil Nadu
Assam
Meghalaya
Orissa
Tripura
Kerala
Madhya Pradesh
In the case of salaried professionals and wage earners, the tax is deducted from the employee salaries and the employers are liable to pay this tax on behalf of their workmen/employees to the State Government.
Employer’s Responsibility for Professional Tax:
It is the employer’s responsibility to pay the tax to the State Government by deducting the amount from their employees’ salaries. The owner also has to file a return to the Tax Department in the prescribed form along with the proof of tax payment within the specified time. In case the proof of tax payment is not sent along with the forms, the return shall be deemed incomplete and invalid.
Registration:
The employer must apply for the registration within 30 days of the appointment of staff in the business. If the office is in more than 2 states, then different applications need to be sent to the relevant authorities under different states.
The penalty under Professional Tax:
If there is any fault or delay in obtaining Professional Tax Certification Number, the employer will incur a penalty of Rs.5/- per day. In a case of no/late payment, the employer will incur the penalty of 10% of the tax amount. In the case of late filing of returns, a penalty of Rs.300/- per return will be imposed.
Hence it is strongly advised to register for tax at the earliest after employment of employees and comply with the rules set forth by the Tax Department.
This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.
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