In India, individuals have to pay different types of taxes depending on their income, profession and expenses. While income tax is levied by the central government, some taxes are also imposed by state governments for funding civic infrastructure, local programs and public services.
Professional tax is one such state-level direct tax, which is generally deducted from the salary of eligible employees by their employers and given to the state. It applies to individuals or entities engaged in profession, trade, or employment and is charged as a percentage of their income.
How much professional tax is payable?
While employers are responsible for deducting professional tax from their employees’ salaries, those who are self employed are required to pay the amount directly to their respective state governments.
The amount of professional tax per year cannot exceed ₹2,500 under Article 276 of the Indian Constitution. However, not every state levies this tax, so it’s prudent to check if it applies to you.
States that levy professional tax include Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Odisha, Puducherry, Tamil Nadu, Tripura, West Bengal, and Jharkhand.
States and union territories that do not levy professional tax include Arunachal Pradesh, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Nagaland, Punjab, Rajasthan, Sikkim, Uttar Pradesh, Uttarakhand, Andaman and Nicobar, Chandigarh, Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep.
Can you claim professional tax as a deduction?
Professional tax deducted from an employee’s salary can be used to lower your taxable income, this reducing your overall tax liability. This provision is applicable even if the tax was paid in advance.
“Professional tax paid by the employee, by way of deduction from his salary, is allowed as a deduction from the taxable salary income. Even if paid in advance, the professional tax paid during the year is deductible from the salary income,” according to income tax department’s website.
However, if the employer pays the professional tax out of their own pocket, without deducting it from the employee’s salary, then it shall be first included in the employee’s income as perquisite. After that, a deduction on such professional tax is allowed from gross salary, as per income tax rules.
Taxpayers must also note that professional tax deduction under Section 16(iii) is not allowed under the new tax regime. It can only be claimed if you choose to file your taxes under the old tax regime in the relevant financial year.
Is professional tax part of your annual CTC?
For salaried individuals, professional tax is deducted from their gross salary and reduced the amount they take home each month. It is not a part of your CTC, which represents the cost incurred by your company to employ you.
The amount of professional tax is deducted every month based on your gross salary for that month and paid to the state government on your behalf.
Who doesn’t have to pay professional tax?
Professional tax is not applicable to individuals whose income lies below a certain threshold. The exact exemption limit is different across states.
Apart from such individuals, all public or private-sector employees are mandated to pay professional tax to states those who charge it. This includes salaried employees, as well as professionals like doctors, lawyers, and consultants.
In many states, self-employed individuals and individuals running their own business are also required to pay professional tax.
Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.