Professional Tax in India: A Definitive Guide

Professional tax, despite the name, is not a tax levied only on professionals. It is a tax on all employees, freelancers, professionals, and individuals who earn a living by any type of work — from self-employment to full-time professional jobs. Professional tax is collected based on an individual's income.

Introduced in 1949, Article 276 of the Indian Constitution gave state governments the authority to collect professional tax. The collected tax amount is used towards bettering the infrastructure of the state, thus improving the ease of doing business. The maximum annual deduction limit for an individual is ₹2,500.

Applicability of Professional Tax

Professional tax is a state-specific statutory and the regulations differ from one state to another.

States that collect professional tax: Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Punjab, Puducherry, Sikkim, Tamil Nadu, Telangana, Tripura, West Bengal

States that don't collect professional tax: Andaman and Nicobar Islands, Arunachal Pradesh, Chandigarh, Daman and Diu, Dadra and Nagar Haveli, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Lakshadweep, Rajasthan, Uttar Pradesh, Uttarakhand

Registering for Professional Tax

All establishments from the states where professional tax is applicable must register for it within 30 days of starting a business. Organisations that have branches in multiple states must also obtain registration certificates from their respective state's authorities.

The process to register varies by state, but the information you need to submit is the same across all states. Below is the professional tax registration process in Maharashtra as an example.

Registering for Professional Tax in Maharashtra

The registration process in Maharashtra can be split into the following phases: logging in to the government's website, filling in the common application form, uploading a photo ID card, making payment, and generating the registration certificate.

Here's a step-by-step process on how to register through the government's portal:

1. Visit Maharashtra government's MAITRI portal and sign in as a new user with the name and address of your entity.
2. Once done, log in to the portal with your username and password.
3. Click the CAF option under the CAF and Services tab on the left side of the screen. CAF is the common application form used to register your organisation under the state's professional tax.
4. The Application Form for Availing MAITRI Services will open. Fill in the form with your name, designation, address, and details of your entity.
5. Click the Move to Next Stage button once you're done. On the following page, upload your photo ID card in the dimensions specified. Aadhaar card, PAN card, voter's ID, passport, and driving licence are recognised as photo ID cards by the portal.
6. After successful completion of the CAF, "Document uploaded successfully" will be displayed on screen. You then need to make a payment to complete registration.
7. Click Dashboard and select the Make Payment option under the Payment Status tab.
8. Pay the required amount through your preferred payment mode.
9. The payment receipt and registration certificate for your establishment will be generated after successful payment.

Collecting Professional Tax

Who Collects Professional Tax?

Professional tax is collected by the commercial tax department of each state. Employers are responsible for both deducting professional tax and paying the deducted amount to the respective state authorities. Professional tax is usually deducted during normal payroll runs. In any given year, the deducted tax amount cannot exceed more than ₹2,500 for any employee.

Additionally, employers are also mandated by law to contribute to professional tax. This extends to corporations, partnership firms, sole proprietorships, and business owners carrying on a trade. The contribution rate for business owners depends on the slab set by the respective state governments.

What Does an Employer Need in Order to Collect Professional Tax?

The employer should register and get a professional tax registration certificate to be able to pay taxes for their business. In order to collect taxes from employees, they also need to have a tax enrollment certificate that will recognise the employer as a registered authority to deduct taxes.

The collection is based on an employee's salary slab and the state in which they are employed. Furthermore, separate registration is required for each office if there are multiple work locations across different states within India.

Paying Professional Tax and Filing Returns

How to Pay Professional Tax

The Indian government is constantly trying to make life easier for business owners by moving time-consuming tasks online. In a similar initiative, they've extended the professional tax payment and return filing process online. However, not all states in India can remit professional tax online.

For a state-bound statutory regulation like professional tax, steps for paying professional tax vary by state, but the information you need to submit is the same across all states. Below are the steps for filing professional tax online for Tamil Nadu as an example.

Steps to Pay Professional Tax in Tamil Nadu

1. Begin by locating the official website of the state for which you want to pay, by searching for "professional tax e-payment" and the state — in this case, Tamil Nadu.
2. Visit the Tamil Nadu Greater Chennai Corporation website.
3. On the right side of the website, navigate to Online Tax Payment.
4. A page will open listing various tax payments you can make online. From the list of options, choose Professional Tax.
5. Choose the type of business you own: self-employed professional or registered employer.
6. Enter your Professional Tax Registration Number, the name of your company, and the office for which you are making payments (if there are multiple offices).
7. Choose the period for which you want to pay, such as monthly or annually.
8. Specify the year and month for which you are paying the tax.
9. Enter the tax amount you want to pay along with the penalty amount, if any.
10. Provide the appropriate bank details for the account you'll use to pay the tax and enter your mobile number.
11. Click Enter, verify the details, and click Submit.
12. Once the next screen loads, select Click here for payment.
13. The login page for the bank that you have selected will open. Sign in and pay the professional tax.
14. After payment, remember to save the payment challan for future reference.

Filing Professional Tax Returns Online

Similar to making online payments of the collected professional tax, the process for submitting returns also varies for each state. For example, for Maharashtra it is Form iiiB and for Andhra Pradesh it is Form 5. The interval at which returns should be filed also differs from one state to another. You can file returns online using the state government's website. For states that do not have the provisions to file returns online, you can submit returns through the office of the respective local body. Visit your state's official website to find out more information on their specific filing process.

What Happens if Businesses Do Not Pay Professional Tax?

Non-compliance with professional tax regulations can incur penalties and late fee interest. State governments can also penalize employers for not registering. The penalty amount for delayed payments or non-payment depends on each state's professional tax laws. For instance, employers in Tamil Nadu must pay 2% interest on the due amount for late payments. In Karnataka, the prescribed authority can charge a maximum of 50% of the outstanding amount as a late fee. For more details ledgers.cloud.