Professional Tax in India: Rates, exemption, and applicability

As an individual earning a regular income in the form of salary, you would be required to pay professional tax. However, unlike the income tax one pays to the central government, the professional tax is imposed by state governments. Professional tax in India must be paid by all individuals, including salaried employees, as well as professionals, such as doctors, lawyers, chartered accountants, etc. Majority of the states, except a few, levy the professional tax.

See also: Section 194J of Income Tax Act: TDS on payment to professionals

What is professional tax?

A professional tax refers to the direct tax levied by state governments on salaried individuals in India. The amount of tax is deducted by the employer from an employee’s gross salary. The maximum limit for the professional tax that can be levied in India is Rs 2,500.

Profession tax is deductible under Section 16 (iii) of the Income Tax Act, 1961. As per Section 16 (iii), the profession tax paid by an employee qualifies for a deduction from his gross salary income.

Professional tax calculation

The calculation of professional tax may vary depending on the state one resides in. It is calculated as per the applicable slab rates in states. Like income tax rates, professional tax is progressive in nature, that is, the tax rate increases with the income of a taxpayer.

Professional tax in India: Applicability

States and union territories in India, where professional tax is applicable are given below:

States and union territories in India, where professional tax is not applicable are given below:

Who should pay professional tax?

The following entities and individuals should pay professional tax, as per the state they reside:

• Medical professionals, including dentists, medical consultants, and doctors
• Management and tax consultants
• Chartered accountants
• CS
• Architects and engineers
• Contractors
• Insurance agents
• Societies
• Legal practitioners
• Companies and firms
• HUFs
• Associations and clubs
• LLPs

Note: The list is only for reference and may be subject to change as per applicable state professional tax rules.

Who collects professional tax?

Employers deduct the professional tax amount from employees’ monthly salaries. The amount is paid to the respective state governments. Self-employed individuals are responsible to pay professional tax to states themselves.

Here is the procedure for payment of professional tax.

One must fill the prescribed form. A registration number will be issued by the state where the taxpayer is required to pay tax. Payment can be done by the taxpayer under the registration number at banks. Some state governments also allow rebates on taxes when the amount is paid as a lump sum for a few years together.

Professional tax exemptions

Certain individuals are exempted from paying professional tax, they are:

• Those who run education institutes and teach classes up to 12^th
• Individuals in Central Para Military Force (CPMF)
• An individual who has one child and further has undergone a sterilization operation.
• Handicapped individuals with at least 40 percent disability. The relevant certificate must be submitted.
• Individuals with a permit for a single taxi or a three-wheeler to carry goods.
• Deaf, mute, and blind individuals who earn a salary.
• Combatant and civilian non-combatant members of the armed forces. However, the armed forces are governed by the Army Act.

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