Professional Tax in India: Some Interesting Facts

Professional tax is a type of duty or levy that is imposed on the incomes of professionals engaged in various occupations, business owners, and employees of various organizations. In India, professional tax is a state level levy. Every employee in a private limited company has to pay this duty.

Professional Tax in India

In India, this state-level duty is imposed by different states at different prescribed rates. Madhya Pradesh, Gujarat, Tamil Nadu, Karnataka, Maharashtra, Andhra Pradesh, and West Bengal are the major states in India that levy this tax.

This kind of duty works as a significant source of revenue for the government. For salaried individuals, there are particular slabs according to which professional tax is worked out and collected from them. Similarly, there are slabs of income of people involved in other professions and occupations and in line with those slabs, the levy is collected.

Are professional taxpayers eligible for income tax deduction?

Yes, people paying this duty can qualify for IT deductions. As laid down by section 16(iii) of the IT Act, professional tax on service or duty on service imposed by the state under article 276(2) of the Constitution of India is permissible in the form of a deduction from the salary earnings.

Who has to pay it?

Professional tax has to be paid by the employee and this is the precondition for him or her for being eligible for the deduction. If he or she has not paid it, then no deduction will be allowed.

Other conditions for deduction eligibility

In case the professional tax is paid by the employer on the employee’s behalf, then the same amount will be considered as fringe benefit and subsequently, deduction will also be offered to the employee.

Maximum amount under article 276(2):

As laid down by Article 276(2) of the Constitution of India, municipality, State Government, or other governmental agency which is empowered under Article 276(2) can levy this duty on employment from an individual, subject to an upper limit of Rs. 2,500 per year.

Professional Tax Slab Rates

The professional tax slab rates are evaluated suitably on the basis of a blend of various elements. The first element to be taken into consideration is whether the assessee is a company or an individual. In case the assessee is an individual, then the age and gender of the assessee should be taken into account to determine the slab rate. The slab of earnings under which the individual comes is also taken into account to rightly evaluate the slab rates. Revenue from agriculture is not taken into consideration. In this way, income tax for individuals in India is a progressive form of levy with three slabs.

Professional Tax (PT) in Maharashtra: What is the Scenario?

The idea of professional tax is not unknown to people of Maharashtra. This duty is imposed on vocations, professions, services and businesses at the state level. The returns for this levy have to be filed at the appropriate time. The due date for payment of this levy differs with the amount of revenue. The PT return has to be filed in line with the rules and regulations of the state administration. The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 regulates the guidelines in relation to PT in Maharashtra. The duty is levied on organizations and individuals. Organization in this framework would incorporate a company, a firm, a proprietary business concern, a Hindu Undivided Family, a club, a society, an association of persons or any other organization as laid down by the Act.

Cycle of Returns

The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 mentions that:
i) If the yearly professional tax liability is below Rs.5,000, the return has to be submitted every year;
ii) If the yearly liability for PT is higher than Rs.5,000 but below Rs.20,000, return has to be filed on a quarterly basis;
iii) If the yearly liability for PT is higher than Rs.20,000; return has to be filed every month.

Responsibility on Individuals

Individuals who are staying in Maharashtra have to get a Certificate of Registration if they are involved in any vocation, occupation, service or business. The certificate of registration will be granted by the Tax Bureau. The Certificate will be effective for a period of five years, which offers the advantage of a one time payment (that is tantamount to the amount of professional tax) payable by the individual for four years with regard to his liability. The fifth year is relieved from this payment. Physically challenged individuals (handicap more than 40%) and senior citizens are not liable to pay this duty.

Responsibility on Organizations

Organizations have to obtain a Registration Certificate from the tax bureau and by this means they become enrolled with them. The payment will be made easier by this act. In case of a firm, distinct registration certificate has to be acquired since it is a different legitimate entity.

Furthermore, returns have to be filed within the last day of a particular month to which it is associated and has to incorporate fundamental details concerning the particulars about wages remunerated and tax deducted in that regard.

Due date for individuals obtaining registration certificate is June 30, while any postponement in submitting these returns shall ask for an interest @1.25% every month. In company with it, all registration certificate holders are asked to get bank payment invoices by the middle of June.

Penalty

Default in payment of profession tax attracts for fines from an individual. The severity of the penalty differs with the aim of a person to dodge PT.

Where an individual furnishes false details about his registration, penalty can be three times the amount payable.
If an individual postpones in getting the registration certificate, he will be responsible to pay a penalty @Rs. 2 per day till such postponement is ceased.
If an individual fails to make the payment of any professional tax, he will be asked to pay a fine, which is tantamount to 10 times of the amount of tax.