An insight into Professional Tax and its Components

Understanding levy of Professional Tax

What is Professional Tax

Professional tax is a state level tax levied on the individuals earning their living. Note that this tax isn’t limited to the professionals (indicating people like auditors and engineers. Every earning individual is liable to pay this tax. However, the maximum annual limit of Professional Tax is INR 2500 but the amount of this tax varies from one state to another

Why there are different slabs for Professional tax?

There are different tax slabs for different states because the state government collects this tax. Hence, each state has a different slab for thsi tax. Note that there are a number of union territories and states where this tax isn’t levied.

Who is responsible to pay Professional Tax?

• In case of wage or salaried earners– The employer deducts the tax from the wages/salary of the individuals and deposits the amount to the state government.
• In case of individuals– The employee himself will be responsible for paying this tax. An employee with salary of over Rs.12000 per month is subject to Rs.200 per month of Professional Tax.

How it is paid?

The annual professional tax of an individual is divided into 12 equal instalments, which are to be paid every month. Note that the amount of instalment to be paid in February is higher in comparison to the instalment of other months. In the situations where the sources of income of a person fall under different sectors, a separate tax will be levied on him/her.

Depositing Professional Tax

• The employers designated as an authority under the State Government jurisdiction shall pay the Professional Tax through the bank by Challan. Other employers need to pay the treasury at the place of payment designated by the concerned authorities
• An employer with over 20 employees is required to pay the tax within by 15^th of every month. In case the number of employees is below 20 the employer is required to pay the tax at the end of every quarterly.

Provisions for interest in Professional Tax

• Failure in registration – As per Section 5(5) the individual shall have to bear an amount of Rs.20/- per day as penalty for the period he remains unregistered.
• In case of late payment of tax –The person will have to bear an interest of 18 % per annum along with prescribed penalties.
• Non-deposition of tax amount – The designated authorities recover the Professional Tax amount along with interest and applicable penalty from the defaulter’s assets. Prosecution case (police case) is filed in serious cases.

Also Read: Consequences for not filing the Income Tax return