Professional Tax in India: Meaning, Applicability, and Benefit

Every salaried individual earning a monthly salary must have seen the term 'professional tax' on their salary slip or Form 16. You must have wondered many times why it is deducted from your salary income. Here, we will answer all your questions and explain everything.

Read on to find out what professional tax is, who pays it, how to pay it, and other relevant information.

What is Professional Tax?

Professional tax is a tax levied by state governments in India on individuals earning an income from salary or practicing a profession, such as doctors, lawyers, chartered accountants, etc. Your employer deducts it directly from your monthly salary before releasing your remuneration. Besides salaried employees, self-employed professionals must pay this tax directly to their respective state government. According to the Income Tax Act of 1961, taxpayers can claim a deduction on the amount paid as professional tax.

Who is Applicable for Professional Tax?

Every earning individual in certain states of India must pay professional tax. Self-employed individuals must pay this tax to their respective state government, while salaried employees pay it through their employer. Depending on the state laws, members of Hindu Undivided Families (HUFs), public or private limited companies, cooperative societies, and associations of bodies or persons are also liable to pay this tax.

Who is Responsible for Collecting Professional Tax?

The State Government's Commercial Tax Department collects the tax that employers deduct from their employees' monthly salaries and pays it to the government. However, self-employed professionals who do not work for an employer must pay the tax themselves.

What is the Professional Income Tax Limit?

The Budget 2023 introduced amendments to Section 44AD and Section 44ADA, enhancing the presumptive taxation limits for the financial year 2023-24 (assessment year 2024-25) as follows:

*Note: The revised limits are applicable on the condition that cash receipts do not exceed 5% of the total receipts.

How to Pay Professional Tax?

Now that you know the meaning of professional tax, you must know how to pay it. You may pay the tax using any of the following methods:

• Offline by visiting your nearest tax office and submitting the relevant tax form
• Online by enrolling at your state's official tax website

Consequences of Violation of Professional Tax Regulation

According to Section 5(6) of the Professional Tax Act, you must pay a penalty if you do not clear your tax dues on time. However, the extent of the penalty varies between states. Additional penalties apply if you provide incorrect information when applying for a registration or enrolment certificate. These penalties can be as high as three times your total tax liability.

Steps for Paying Professional Tax

Offline Payment:

• Visit your tax office.
• Fill out the relevant P tax form with all the necessary details.
• Submit this form with the outstanding tax amount to clear the liability.

Online Payment:

• Visit your respective state's official P tax website.
• Click on 'Enrolment Application'.
• Select 'New' if paying the tax for the first time.
• Select 'Enrolled' if you have already filed the tax earlier.
• Enter the necessary details, like the fiscal year, tax office, return type, business status, and class of person.
• Click 'Next'.
• Pay the tax through debit card, credit card, or net banking.
• Download the receipt after the payment is complete.

Importance of Professional Tax

• Makes you a responsible citizen
• Becomes a substantial source of revenue for the state government
• Compliance with professional tax regulations is beneficial when applying for a Business Loan

Benefits of Paying Professional Tax

• Professional tax is an important source of revenue for the state governments. They can use this amount to implement development and welfare programs in the state.
• Tax compliance has minimum restrictions, making it easy to comply with on a regular basis.
• The registration process, proceedings, and follow-ups are easy to complete.
• You can claim a deduction for the tax payment under Section 16 of the Income Tax Act 1961.

Difference Between Professional Tax and Income Tax

Impact of Professional Tax on Business Loan Applications

Paying professional tax regularly impacts your Business Loan application. Here is how:

• Establishes you as a responsible taxpayer
• Demonstrates a solid financial standing
• Serves as a relevant business proof
• Attracts easier approval
• Demonstrates timely tax compliance

Steps to Apply for a Business Loan

Conclusion

Professional tax is a monthly tax payable to the state government. Whether a salaried employee or a self-employed professional, you must pay the P tax on time to support your state government. Timely tax payment also strengthens your Business Loan application. Get a Business Loan of up to 40 Lakh at Hero FinCorp without collateral at a competitive interest rate with flexible repayment tenures.

Frequently Asked Questions