Professional Tax (PT) Guide & Applicability
What is the Background of Professional Tax?
The Professional Tax was first levied in India in 1949, and the power to levy Professional Tax was given to the states under Clause (2) of Article 276 of the Constitution of India. The Professional Tax levies on professions, trades, calling, or employment. The P. Tax is charged based on a slab rate, which is decided based on the income of an individual.
What is the Applicability of the Professional Tax Act?
The Professional Tax Act is enforced in 19 state governments out of 37 states, including union territories. The Act applies to any person earning a salary and employer by whom tax is payable under this Act. Every employer is liable to deduct professional tax from the salary of an employee at prescribed rates and deposit the same on or before the due date. While charging professional tax, one should check the number of employees and wages earned because these vary from state to state.
What is Professional Tax?
Profession Tax is a state tax levied on Professions, Trades, Callings, and Employments and deducted by the employer from employees' salaries according to the applicable slab rate in your state. The employer is also liable to pay Professional Tax, which may vary from state to state, but it has a maximum limit of INR 2500 per year. This act fixes employers' responsibility to deposit the professional tax with the state government. In the case of other classes of individuals, such as lawyers, teachers, doctors, and chartered accountants, this tax is paid by the employer himself.
Who is liable to contribute, deduct and deposit Professional Tax?
Every employer is liable to deduct professional tax from employees' salaries, which the employer collects and pays with the appropriate state government on the due date. The employer is also liable to the professional tax of the enrolled person, popularly known as employer professional tax, once a year.
What is the Consequence of non-compliance for Professional Tax?
The actual penalty depends on the respective State's professional tax laws. Businesses might have to pay the penalty, late fee, or interest for delay in tax payments, non-filing of returns within the specified due date, and non-registration.
What are the Exemptions under the Professional Tax Act?
Exemptions under the Professional Tax Act can vary depending on the specific provisions of the act and the regulations set forth by individual states in India. However, here are some common exemptions that may apply:
- Salary/Wage Threshold: Many states exempt individuals whose salary or wages fall below a certain threshold from paying professional tax.
- Certain Categories of Employees: Certain employees, such as senior citizens, disabled persons, and individuals engaged in specific occupations, may be exempt from professional tax.
- Government Employees: At the central and state levels, employees working for the government may be exempt from professional tax.
- Agricultural Income: In some states, individuals earning income solely from agricultural activities may be exempt from professional tax.
- Charitable Institutions: Charitable institutions and non-profit organizations may sometimes be exempt from professional tax.
- Registered Welfare Funds: Contributions made to registered welfare funds for the benefit of employees may be exempt from professional tax.
- Specific Industries: Some states may grant exemptions to employees working in specific industries or sectors.
How do Registration & Returns work for Professional Tax?
Professional tax is a state subject. There is no fixed procedure to pay professional tax. It can be paid online or offline, depending on the state where the business operates. Also, the intervals and procedures for filing professional tax returns depend on the State. For more details, please check the respective state checklist.