Did you know that if you pay a salary to even one individual, you need Professional Tax Registration?

The term 'Professional Tax' may be one of those that does not fully reflect the true sense of the term. Contrary to what the name implies, it is not a levy imposed only on professionals. It is a levy on all occupations, industries, and jobs that is charged depending on the wages earned by such occupation, trade, or employment. It is imposed on workers and others doing business in the state. It is levied on employees, a person carrying on the business including freelancers, professionals, etc., subject to income exceeding the monetary threshold if any. Additionally, an employer (corporates, partnership firms, sole proprietorship etc) also being a person (in law), carrying on trade/profession, is required to pay Professional Tax on its trade/profession, again, subject to the monetary threshold if any provided by respective State’s legislation.

It may be noted that Professional Tax is a deductible amount for the purpose of

Income-tax Act, 1961 and can be deducted from taxable income.

Professional Tax is levied by the State Government, hence is different from state to state.  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 of individuals. Further, Article 276 of the Constitution which empowers the State Government to levy Professional Tax also provides a maximum cap of Rs 2,500 annually.

Tax Slabs

Some other states that impose this tax are: Andhra Pradesh, Assam, Bihar, Gujarat, Karnataka, Kerala, Madhya Pradesh, Meghalaya, Orissa, Sikkim, Tamil Nadu, Telangana, Tripura, West Bengal, Maharashtra, Jharkhand, Manipur, Mizoram, Puducherry, and Chhattisgarh.

 Two important points about Professional Tax:

1. It is compulsory

2. Professional Tax deduction is exempt from income tax. This means that the amount can be shown as a deduction from your salary income in your income-tax returns.

There are two types Professional Tax certificates:

• PTEC (Professional Tax Enrolment Certificate): This is paid by the business entity, owner or a professional i.e. Private/ Public Limited Company, Sole Proprietor, Director etc.
• PTRC: (Professional Tax Registration Certificate): Government or Non- Government employer deducts the tax from the employee’s wages and deposits the same with the government

Professional Tax is applicable, once the person begins his profession or business, within 30 days of starting the business/profession. In case the company has its presence in different places, then it is required to take registration for each such place.

-        Who should register?

o   Every self-employed professional

o   Any entity employing one or more employees

-        Who are exempt?

o   Foreign employees are exempt from paying profession tax.

o   Indians employed by the Foreign office and consultants are excluded from taking the certificate of registration 

An employer is responsible for deducting the Professional Tax from the salaries of his/her employees and deposit the collected amount with the appropriate government department, also to file a return to the department in a prescribed form with proof of tax payment within a certain period of time. Employer (Corporate, Sole Proprietorship, Private Limited) is also liable to pay the tax on his trade or business.

The amount to be deducted from your income as Professional Tax is determined by two things:

a. Your earnings and the threshold slab it falls into

b. The state’s Professional Tax slab

Any other class of individuals, the tax can be paid directly to the government or through the authorised local body.