Professional Tax in India: Meaning, Key Differences, and Payment Timelines

What is a professional tax?

Professional tax is a direct tax levied by state governments in India on individuals earning income through employment, business, or profession. It applies to both salaried employees and self-employed individuals such as freelancers, traders, and professionals. Since it is regulated at the state level, the applicable rates and rules vary from one state to another.

Professional tax is separate from income tax, which is collected by the central government. Individuals may need to pay both, depending on their income source. Employers are responsible for deducting professional tax from employee salaries and depositing it with the state authorities, while self-employed individuals must register and pay it directly. Though the amount is usually nominal, timely payment is mandatory to avoid penalties.

Here is an in-depth look at professional tax.

Professional tax in India

If you are a salaried employee, take a closer look at your salary slip or inquire with your organisation's HR personnel. You will learn that your employer deducts a small amount every month based on your income month along with other regular deductions. This amount accounts for your professional tax, which your employer pays to the state government on your behalf.

Suppose you are a chartered accountant, lawyer, doctor, or any other practising professional in India. In that case, you will have to pay professional tax to the state government of the place in India where you have your practice. The amount will vary as per your earnings.

Difference between professional tax and TDS

Here’s how professional tax differs from Tax Deducted at Source (TDS):

Factor	Professional tax	TDS (Tax deducted at source)
Applicability	Levied by state governments on income earned from profession, employment, or business	Deducted from various income types like salary, interest, rent, or professional fees
Authority	Controlled and implemented by respective state governments	Regulated by the Central Board of Direct Taxes (CBDT) under the Income Tax Act
Collection	Collected by the state through employers or directly from self-employed individuals	Deducted at the source by the payer and remitted to the central government
Purpose	Generates revenue for the state government	Ensures advance collection of income tax on behalf of the taxpayer
Documentation	No separate documentation is needed for filing income tax returns	Requires reporting through Form 16 or Form 16A while filing income tax returns

Who should make professional tax payment?

As a professional earning in India, you can pay professional tax. For an employed individual, the employer makes a professional tax payment to the state government. For self-employed professional, you need to make the professional tax payment on your own.

Timelines for professional tax payment

Payment timelines for professional tax vary based on the number of employees in an organisation.

• For businesses with over 20 employees, professional tax is typically due every month.

The payment deadline for monthly professional tax is usually the 20th of the succeeding month.

• Businesses with fewer than 20 employees may have an annual professional tax payment requirement.

The annual professional tax payment deadline often falls on March 31st of the financial year.

What is the professional tax limit?

In 1949, when the professional tax was first introduced in India, the maximum amount was set at Rs. 250. This was increased to Rs. 2,500 in 1988, and since then, this amount has been kept unchanged. So, as a salaried individual or a professional drawing regular income, your employer or the respective party can pay professional tax from where your income comes.

No matter who is making the professional tax payment, the rules for registering for it remain the same. Professional tax payment depends on the nature of your work and the slab based on your income.

Why is it different for different people?

Based on how you earn a regular income, your professional tax obligations alter. The tax also varies from one state to another, with some Indian states and union territories not charging any professional tax. So, the amount to be deducted from your income as professional tax is determined by two things:

1. Your earnings and the threshold slab it falls into and
2. The state's professional tax slab

Professional tax for salaried individuals

The professional tax is determined by the gross monthly income corresponding to the income slab, as per the state where you are employed. So, if your gross income every month is Rs. 30,000 and you are working in Maharashtra, you are liable to pay Rs. 200 every month except February. You will be required to pay Rs. 300 only in February. This amount is derived based on the professional tax slab declared by the state. Your employer usually deducts this amount from your salary.

Professional tax for self-employed individuals

If you are not employed with an organisation as a salaried individual, then you are liable to make professional tax payments on your own. It is your responsibility to submit your taxes to the state where you work without fail. According to the Professions, Trades, Callings and Employment Act 2000, all professionals who are earning their income by carrying out their practice in a chosen specified field, such as a doctor, chartered accountant, medical professional, technology expert, lawyer, or more, are entitled to pay professional tax. Freelance professionals are also counted within this category.

All professionals, including freelancers, need to apply for the professional tax registration number. You can download this form from your state's professional tax website based on the specialised work you do. Once you have a professional tax registration number, you can use it to pay your professional tax now and in the future. Some states offer a rebate if you pay to advance professional tax based on future income in a lump sum. Thus, knowing the state professional tax slabs is very important.

Professional tax for companies

Any company doing business in India is liable to pay a lump sum professional tax based on its employee earnings deduction. Apart from this liability, as the firm owner, you are supposed to pay a professional tax for your firm based on your income earnings. You can pay both these tax liabilities by registering online using forms available on your state government professional tax website.

Pay online:
For example, if your company is located in Maharashtra, you will first need to register on the government of Maharashtra tax website to seek a registration certificate. Once registered and verified, you will receive an enrolment certificate. Both these certificates allow you to officially deduct professional tax for your employees and submit them at actuals to the state government of Maharashtra.

Pay offline:
Further, you can visit your nearest district sales tax office to clarify details about your firm's professional tax obligations and personally fill up forms to initiate the process.

Who is responsible for paying professional taxes?

Here’s a breakdown of how’s responsible for paying professional taxes based on different scenarios:

• Employers must deduct and pay professional tax on behalf of their employees if their salary exceeds the threshold specified by the respective state law.
• In addition, employers themselves (such as companies, partnership firms, or sole proprietors) must pay professional tax on their own professional or business income, subject to applicable state thresholds. For this, the employer must obtain two certificates: A professional tax registration certificate (for paying tax on the business/profession) and a professional tax enrolment certificate (for deducting and paying tax on behalf of employees). In some states, separate registration may be required for each office or branch.
• Freelancers and self-employed individuals without employees also need to register and pay professional tax if their income exceeds the specified limit set by their state government.

Exemptions apply in certain cases. For instance, in Karnataka, individuals such as parents or guardians of persons with mental disabilities or those who are blind are exempt from paying professional tax.

What happens if you do not pay professional tax?

As specified under Section 5(6) of the Profession Tax Act, the penalty you will incur if you are found providing wrong information when applying for an enrolment certificate or a registration certificate is three times the amount of your total tax obligation. Thus, it is imperative to be thorough with the application process so that you can make neat, professional tax transactions all along.

How is professional tax calculated on salary?

Professional tax is calculated every month based on your gross salary for that month. Say that your cost to company (CTC) is Rs. 50,000 per month, and after deduction of your employee provident fund (EPF), gratuity, or any other deduction, your gross salary comes to Rs. 40,000. The professional tax will be levied on this amount of Rs. 40,000. So, each month based on the increase or decrease of your gross salary, your professional tax slab will also differ and accordingly, your employer will deduct this tax.

In which states is a professional tax not applicable?

Not all Indian states levy professional tax.
The states and union territories where professional tax is not applicable are:

• New Delhi
• Arunachal Pradesh
• Chandigarh
• Chhattisgarh
• Dadra & Nagar Haveli
• Daman & Diu
• Haryana
• Lakshadweep
• Jammu & Kashmir
• Rajasthan
• Uttaranchal
• Uttar Pradesh

The states that impose professional tax are:

• Karnataka
• Bihar
• West Bengal
• Andhra Pradesh
• Telangana
• Maharashtra
• Tamil Nadu
• Gujarat
• Assam
• Kerala
• Meghalaya
• Odisha
• Tripura
• Madhya Pradesh
• Sikkim
• Goa

Where should you show professional tax in your ITR?

If you are salaried, then you need not worry about declaring professional tax in your ITR. Your employer will do the needful. The only thing that you need to check when you are handed Form 16 is that under 'income from salary'. The amount declared is your gross salary minus the exemptions and professional tax. Also, check that the amount before deduction and all other details are mentioned under Chapter VIA in Part B of Form 16. Tallying these variables will allow you to raise questions regarding discrepancies, if any.

If you are filing an ITR as a professional or for your company, you will have to declare your gross income based on the ITR form you are filling. Then based on all other parameters such as rent, investments, etc., you will also quote the professional tax liability for the year. If you have been making monthly or quarterly professional tax payments as a company, then furnish eligible documents as proof and mention the amount in your ITR.

When is professional tax deducted?

If you are a salaried individual, then as mentioned under Article 276(2) of the Indian Constitution, your employer will deduct the professional tax based on your salary slab from your gross income every month. It will then be remitted to the state.

You will have to make professional tax payments appropriate for your category slab in the state where you work or where your business is based. This is applicable if you are a professional or owner of a private limited or limited liability partnership company or partner in a partnership firm, or even as a sole proprietor company. The only exemption is given to senior citizens, people who have disabilities, parents to disabled, or parents of a mentally challenged child.

Can professional tax be paid online?

Professional tax payments can be made online by visiting the state's professional tax or sales tax website where you work or have your business in. In fact, in case you are making monthly payments towards your professional tax, then e-filing becomes a mandatory option. For example, if you are filing professional tax in Maharashtra, you can do the same in seconds on the mahagst website.

You will have to make payments and file your returns monthly if your tax liability crosses Rs. 50,000 in a year. You are allowed to pay for your professional tax until the last day of the subsequent month. However, you can file your returns only once at the end of the financial year in March if your total liability is less than Rs. 50,000.

Look at the steps via which you can easily pay your professional tax online in Maharashtra.

• First, get on the mahagst website and then select the e-payment link.
• Log in to the portal using your TIN number and select e-payment.
• On successful login, MTR form No. 6 will be displayed. It will contain all your details and TIN by default.
• Next, select the type of e-payment, the period for payment, the amount, the location under which you are registered. Fill every detail with precision and accuracy, as you will not be able to change any detail once submitted.
• If you are paying on behalf of your employees, you should select form ID 'VIII' for the professional tax payment. If this does not apply to you, you can select the 'other' option and choose the appropriate remark from the drop-down list.
• Once you are ready with the form, then click to submit it. The government request number or GRN will be immediately generated. You can choose 'pay' and complete the professional tax payment transaction.
• Save the receipt that will appear on successful payment as proof that you have already made your professional tax payment to the Maharashtra government.

Even if you are filing your professional tax in any other state, the basic steps to make your professional tax payments will be the same. Just follow this map and pay your professional tax online using the state slabs and mandates.
Additional Read: Loan for Professionals