Many salaried employees might be very well aware of the term ‘professional tax’ as it would have been mentioned in the pay slips/Form 16 issued to them. But all of them may or may not understand what it is and why is it appearing in their pays slips/Form 16 as a deduction from their salary income. Hence, this article is an attempt to provide a better picture of what is ‘Professional tax’ and why is it deducted and is it only salaried class who are bearing it.
What is Professional tax and who levies it?
The nomenclature ‘Professional tax’ could be one those terms which do not completely convey the real meaning of the term. It is just not the tax levied only on professionals unlike the name suggests. It is a tax on all kinds of professions, trades, and employment and levied based on the income of such profession, trade, and employment. It is levied on employees, the person carrying on business including freelancers, professional etc. subject to income exceeding the monetary threshold if any.
As per Article 246 of the Constitution of India, only Parliament has the exclusive power to make laws with respect to Union List which includes taxes on income. The state has the power to make laws only with respect to Concurrent list and State list. However, Professional tax though is a kind of tax on income is levied by State Government (Not all states in the country chose to levy a professional tax). State Government is also empowered to make laws with respect to professional tax though being a tax on income under Article 276 of the Constitution of India which deals with a tax on professions, trades, callings, and employment.
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 Rate
Professional tax being levied by the State Government is different in different states. Every state has its own laws and regulation to govern professional tax of that particular state. However, all the states do follow slab system based on the income to levy the professional tax.
Further, Article 276 of the Constitution which empowers State Government to levy professional tax also has provided for a maximum cap of Rs. 2,500 beyond which professional tax cannot be charged on any person.
Following Details are provided for PTRC for the State of Maharashtra
Registrations:
Obtaining a PTRC registration is mandatory within 30 days of employing first staff in the business. A delay in obtaining the PTRC Certificate will be charged at Rs.5 per day from the due date.
Slab for PTRC Payable by the Employer in Maharashtra:
| SALARIES OR WAGES PAID TO EMPLOYEES (MONTHLY) | AMOUNT |
|---|---|
| Does not exceed Rs. 7,500 | NIL |
| Female - Exceeds Rs. 7,500 but does not exceed Rs.10,000 | NIL |
| Male - Exceeds Rs. 7,500 but does not exceed Rs.10,000 | Rs. 175 per month |
| Female and Male –Exceeds Rs.10,000 | Rs. 200 per month* |
*Rs.300 in the month of February.
PTRC Payment and Filing of Returns:
The professional tax return must be filed by those having professional tax registration. For example in the state of Maharashtra, those entities having a professional tax liability of more than Rs.50, 000 are required to file a monthly professional tax return before the last date of each month. Those entities having a tax liability of less than Rs.50, 000 in the previous year are required to file a tax return annually – on or before the 31st of March.
A revised professional tax return can be filed in Maharashtra if any omission or incorrect statement has been furnished. Return can be revised at any time before a notice for assessment is served or before the expiry of a period of six months from the end of the year for which the return was due.
| Annual Tax Liability During the Preceding Year | Periodicity | Due Date for Payment & E-Return Filing |
|---|---|---|
| Annual Tax Liability less than Rs. 50,000 | Annually* | 31st March of the respective F.Y. |
| Annual Tax Liability equal to or above Rs. 50,000 | Monthly | Last day of the respective month. |
*Periodicity is monthly in the first year of registration.
Professional Tax Fines & Penalties
While the actual amount of penalty or penal interest may depend on respective State’s legislation, the penalty is being levied by all such states for not registering once professional tax legislation becomes applicable. Further, there are penalties for not making the payment within due date and also failing to file the return within specified due date.
For Example Maharashtra Professional Tax Fines and Penalties
Non-compliance under Professional Tax regulations in Maharashtra could attract heavy penalties or fines.
The penalty for Not Obtaining Professional Tax Registration
A penalty of Rs.5 per day of not obtaining professional tax registration (PTRC) in case of an employer and Rs.2 per day in case of a person (PTEC) is applicable.
The penalty for Late Filing of Return
The Late filing of professional tax return attracts a penalty of Rs.1000 due before the filing of the return. The penalty amount is payable in addition to any amount payable as per the return.
The penalty for Late Payment
The Late payment of professional tax dues can be penalized with a penalty of 10% of the tax due. Further, interest on late payment can be charged at up to 1.25% per month.