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Professional Tax Registration and Compliance
Professional tax is a direct tax imposed on individuals who earn income through their professions, employment, businesses, or trades. Unlike income tax, which is administered by the Central Government, professional tax is a state or union territory government tax in India. For salaried and wage-earning individuals, the responsibility for professional tax collection and deposit lies with the employer. The employer deducts the professional tax amount from the employee's salary or wages and then remits it to the respective state government. In cases involving individuals who do not receive a regular salary, such as self-employed professionals or business owners, they are required to pay the professional tax themselves directly to the state government. The exact calculation and amount of professional tax may vary from one Indian state or union territory to another, as it is subject to state-specific regulations. However, it is important to note that there is a maximum annual limit for professional tax, which is set at Rs. 2500. This means that no individual should pay more than Rs. 2500 per year as professional tax, regardless of their income level.
Professional Tax Applicability
This tax is levied on all kinds of professions, trades, and employment. Profession tax is applicable to the following classes of persons:
- An Individual
- A Hindu Undivided Family (HUF)
- A Company/Firm/Co-operative Society/Association of persons or a body of individuals, whether incorporated or not
The professionals earning an income from salary or other practices such as a lawyer, teachers, doctors, chartered accountants, etc. are required to pay professional tax.
Professional Tax Applicable States across India
Please refer to the following table to know more about the states which impose professional tax in India:
| Applicable States | Non-Applicable States |
|---|---|
| Andhra Pradesh | Central |
| Assam | Andaman and Nicobar Islands |
| Bihar | Arunachal Pradesh |
| Gujarat | Chandigarh |
| Jharkhand | Chhattisgarh |
| Karnataka | Dadra and Nagar Haveli |
| Kerala | Daman and Diu |
| Madhya Pradesh | Delhi |
| Maharashtra | Goa |
| Manipur | Haryana |
| Meghalaya | Himachal Pradesh |
| Mizoram | Jammu and Kashmir |
| Nagaland | Ladakh |
| Odisha | Lakshadweep |
| Pondicherry | Rajasthan |
| Punjab | Uttar Pradesh |
| Sikkim | Uttarakhand |
| Tamil Nadu | |
| Telangana | |
| Tripura | |
| West Bengal |
Professional Tax Rate
The maximum annual amount payable for professional tax in India is INR 2,500. Professional tax is typically assessed using a predetermined tax slab system based on an individual's gross income, and it is deducted from their income on a monthly basis. Each state or union territory in India has its own Commercial Taxes Department, which serves as the primary agency responsible for collecting professional tax. These departments establish specific tax slabs, which can vary from one state or union territory to another. The tax calculation is based on an individual's annual taxable income. Individuals have the flexibility to pay professional tax either on an annual or monthly basis, depending on the rules and regulations established by the respective state or union territory. This provides some flexibility for taxpayers in managing their tax obligations according to their preference and financial circumstances.
Who Pays Profession Tax?
For salaried and wage-earning individuals, the responsibility for professional tax payment lies with the employer. Employers are required to deduct the professional tax amount from the employees' salaries or wages and then remit this amount to the state government. However, self-employed individuals who engage in their own professions or trades and are subject to professional tax must directly pay the tax to the state government. In this case, they are responsible for managing their own professional tax payments to comply with the regulations.
Employer’s Responsibility for Professional Tax
Business owners are obligated to deduct professional tax from their employees' salaries and remit it to the relevant government department. They must submit a timely return in the prescribed format, which should include evidence of tax payment. Failure to include the payment proof renders the return incomplete and invalid. Compliance with these requirements is crucial for business owners to ensure that they fulfill their professional tax obligations and maintain proper records with the tax authorities.:
Exemptions for Payment of Professional Tax
There are exemptions provided for certain individuals to pay Professional Tax under the Professional Tax Rules. The following individuals are exempted to pay Professional Tax:
- Parents of children with permanent disability or mental disability
- Members of the forces as defined in the Army Act, 1950, the Air Force Act, 1950, and the Navy Act, 1957 including members of auxiliary forces or reservists, serving in the State.
- Badli workers in the textile industry
- List An individual suffering from a permanent physical disability (including blindness)
- Women exclusively engaged as agents under the Mahila Pradhan Kshetriya Bachat Yojana or Director of Small Savings.
- Parents or guardians of individuals suffering from a mental disability.
- Individuals, above 65 years of age
Professional Tax Registration and Compliance
Professional Tax Registration is mandatory within 30 days of employing staff in a business or, in the case of professionals, 30 days from the start of the practice.
- Application for the Registration Certificate should be made to the assessed state tax department within 30 days of employing staff for his business.
- If the assessee has more than one place of work, then the application should be made separately to each authority with respect to the place of work under the jurisdiction of that authority.
Due Dates for Professional Tax Payment
Employers with over 20 employees must pay professional tax within 15 days of the month's end. For those with fewer than 20 employees, payments are made quarterly by the 15th of the following month after the quarter's end.
Professional Tax Return
The Professional Tax Return is to be filed by all the persons having Professional Tax Registration and the due dates for filing of such returns vary from State to State.
Benefits of Professional Tax Registration
The benefits of Professional tax Registration are given below:
- It is simple to comply with the Professional Tax Compliance, which results in a smooth registration process with minimum restrictions.
- It is compulsory to pay Professional tax as per the law. Hence, the timely payment of Professional tax can help avoid penalties and any punitive action against the Employer or a self-employed person.
- Professional Tax Compliance is simple, which can enable a smooth and hassle-free Registration Process.
- The Professional Tax acts as a revenue source for the state governments that helps the government to implement schemes for the various welfare and development of the region.
- The Employer or the self-employed person can claim a deduction on the previously paid professional tax.
Documents required for Professional Tax Registration
- Certificate of Incorporation / LLP Agreement
- MOA and AOA
- PAN Card of Company/LLP/Proprietor/Owner/Director
- NOC from the landlord, where the business is situated
- Passport size photos of Proprietor/Owner/Director
- Address and identity proof of Proprietor/Owner/Director
- Details of employees and salaries paid
- Additional registrations and licenses
Procedure for Professional Tax Registration
The process for Professional Tax Registration varies across states in India, and the frequency of filing returns is determined by each state's specific regulations. Professionals and employers interested in obtaining professional tax registration should adhere to the following procedure as outlined below.
- The applicant must file the application form and the requisite documents.
- The applicant needs to submit the Application with the necessary documents to the concerned state government. A copy of the same should also be submitted to the tax department.
- On receipt of an application, the tax authority shall scrutinize the application to ensure that all the information is correct.
- Issue of Registration Certificate: The authority will issue the Registration certificate after successfully scrutinizing all the documents.
Penalties Related To Professional Tax Registration
When the professional tax policy is applicable, various jurisdictions may impose penalties for failing to register for Professional Tax. The specific penalty amount is contingent on the regulatory laws of the respective state. Penalties also apply for late submission of Professional Tax returns and delayed payments. Each state's professional tax regulations stipulate the precise penalty amounts. Companies that do not register for professional tax, make delayed payments, or miss filing deadlines may incur fines, late fees, or even legal consequences. For instance, the Maharashtra Government outlines penalty amounts for late filing or non-payment of Professional Tax within the state.
| Nature of default | Penalty Leviable |
|---|---|
| Not obtaining PT registration | Rs.5/- per day |
| Late filing of PT return | Rs.1,000/- |
| Late payment of PT dues | Interest @1.25% p.m. Penalty @10% |
As an example, if the payment of professional tax amounting to ₹1 Lakh is delayed by 12 months, the applicable penalties and interest may be calculated as follows:
Simple Interest Payable: ₹1,000,000 x 1.25% (0.0125) for 12 months = ₹12,500
Penalty for Delay: ₹10,000
Total Amount Due: ₹12,500 (Interest) + ₹10,000 (Penalty) = ₹22,500
The maximum penalty for a delay in payment of ₹1 Lakh for a year, along with a delay in filing the return, would be ₹12,250.
Frequently Asked Questions
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