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Professional Tax Deduction – Definition, Applicability, and Key Details

What is Professional Tax Deduction?

A professional tax is a state tax on individuals earning salaries or wages, as well as on people practicing professions such as doctors, lawyers, and accountants. An indirect tax, such as a professional tax, is imposed by state governments and is compulsory for individuals who fall into taxable salary or income categories prescribed by each individual state. The tax is deducted from the salary of an employee by the employer and is later paid into the state government account within the stipulated time frame. This deduction is basically the way by which the amount of professional tax paid can reduce the taxable income, which then lowers the overall tax liability of the individual.

Professional Tax Deduction from Salary

Employer Liability: It is the legal responsibility of the employer to deduct professional tax as per the slab rates prescribed by the respective state government for the employees. In this way, the employer must ensure the timely deduction and distribution of the amount collected to the appropriate tax authority.
Deduction Frequency: Based on the form of taxation defined by each of the states, professional tax deduction takes place monthly or once every six months. Although some states can eliminate it monthly, others may be different like quarterly or semi-annual collections.
Maximum Deduction: The maximum amount that can be deducted as professional tax is Rs. 2,500 per annum. This limit is applicable irrespective of the state and cannot be exceeded under any circumstances.
Salary Slip Reflection: The deduction for professional tax is clear in the salary slip under the ‘Deductions’ section so that the employee knows the exact amount deducted.
Employer Expense: As much as this professional tax is owed by the employee, the employer appears to be the responsible party when collecting and remitting it. Records of professional tax payments and deposits must be maintained because failure to do so would invite penalties as well as legal action.

Professional tax deduction procedure:

Registration: Employers and the self-employed obtain registration for professional tax with their respective state governments. This includes getting the professional tax registration certificate from the appropriate authority.
Calculation: Each state probably has its own slab rates, which determine the amount of professional tax to be claimed. The slabs are on different scales depending on the monthly or annual income of the person.
Deduction: The employer will now deduct the professional tax from the employee’s salary according to the applicable slab rate. The employer also has to maintain a record of consent for consent.
Payment: All deducted amounts of this professional tax are then deposited with the state government using the applicable modes, either online or offline. It becomes important to pay their professional taxes within the stipulated time for self-employed people to avoid fine.
Filing Returns: Professional tax must be filed periodically by employers and self-employed individuals. The due dates for filing are determined by the governments of the respective states. Late filing of returns might attract penalties and interest on late payment.

State-wise Professional Tax Deduction Slabs

Maharashtra: The professional tax deducted varies with salary, with a maximum of Rs. 200 per month, and Rs. 300 from the month of February.
Karnataka: In Karnataka, the professional tax is Rs. 200 per month for all who earn above specified levels.
West Bengal: Rs. 110 to 200 per month according to income slabs.
Tamil Nadu: The professional tax is a monthly tax of Rs. 75 to 208 depending on the salary slab.
Telangana & Andhra Pradesh: The tax ranges from Rs. 150 to Rs. 200 depending on the salary slabs.
Gujarat: The professional tax applies to high-income persons at Rs. 200 per month only.

Penalty for Non-Payment of Professional Tax

Late Payment Penalty: If an individual defaults on paying professional tax, a late payment penalty shall apply based on the stipulated amounts in the individual states.
Interest on Outstanding Amount: Unpaid professional tax shall carry an interest charge, which is usually computed on a monthly or yearly basis until the date of clearing the tax dues.
Failure to Register: If business and professionals fail to register for professional tax within a certain period of time, fine can be charged according to state regulations.
Non-filing of Returns: If employers fail to submit periodic returns within the stipulated time, they may face a fine or other legal action.