Professional tax is one which is levied on all professions, trade and forms of employment. The tax is not restricted itself to professionals alone as it is collected based on an individual’s income who must have professional tax registration certificate. Therefore, employees, and individuals who own businesses and professionals are taxed under this term if their income exceeds the threshold.
According to Article 246 of the Indian Constitution, the Parliament is the only body which can alter laws related to tax on profits. A professional tax, however, is levied by the State Governments; hence, they have the right to make laws and amendments related to those concerns. The article 276 of Indian Constitution deals with the taxes which are applicable on employment, trade, & professional based occupation.
What is the Difference between Tax Deduction at Source (TDS) and Professional Tax deduction?
One has to understand a difference between (TDS) Tax Deduction at source and professional tax deduction. Both the terms are often mistakenly used in place of one another. However, the tax deduction at source is the amount cut by the employer based on the predetermined TDS slab.
The income here is subject to a tax deduction from source, which includes earnings from fees, rent, salaries, and even interest savings. Therefore, it works as a tax one has to pay in advance. Thus, tax deducted at source leads to Income Tax return filings which help in saving tax later on. Such tax deducted on source helps government to know which all of the incomes have already been taxed. The government has the information to exempt those from being taxed again.
However, professional tax payment does not work as the Income Tax returns paid in advance. Since there is no national body that governs the collection of professional tax, there is also not a particular Professional tax slab. Instead, the respective state governments come up with the slab rates for the same.
Who Collects the Professional Tax?
A Professional Tax is collected by the Commercial Tax Department. Every state has a department that works on managing Professional tax. After tallying, an aggregate amount goes to municipality corporation fund.
The employer may deduct tax, when it comes to companies and then pay this to State Government. Similarly, corporate firms, since they work in a field of trade or commerce, must pay professional tax if their income exceeds the particular amount. Therefore, an employer has to register with an agency and get the professional tax registration certificate. Freelancers must also register and pay Professional tax if their monetary benefit exceeds a threshold.
Professional Tax Registration Certificate
The employer (government and no- government) are required to deduct professional tax at prescribed rates form the employee’s salary or wages and deposit the same to respective state government. It is the liability of employer to pay tax even though it fails to deduct from the wages or salaries of employees.
Process to get Professional Tax Registration Certificate
Grant of the Registration Certificate
- If the application is all correct and complete in all respect along with necessary documents, then Registering authority will generate TIN after verifying. In case an application becomes eligible for granting the registration, then a date of uploading an application will be considered as a date of application for the purpose of determining the effective date of RC (Registration Certificate).
- Professional tax Registration certificate will be sent via email and post. The applicants do not require visiting MSTD offices for procurement of registration certificates as the same would be made available the portal in download format with digital signature of appropriate certifying authority.
Rejection of the Application
- If an application is found to be defective, then defect memo will be issued and not an e-mail to applicant. An applicant requires rectifying the defects within 30 days.
- In case an applicant rectifies defects within 30 days, then the officer will verify if he finds it satisfactory. Afterwards, TIN would be generated. In this matter a date of first application would be taken for a purpose of determining the effective date of registration certificate.
- If an applicant does not rectify defects shown in the defect memo within 30 days, then an application can be rejected, and the temporary profile gets de-activated after 90 days.
Exemptions to Professional Tax
There are some exemptions provided for individuals to exempt from paying Professional Tax, which are as follows:-
- Parents of children having permanent disability or mental disability.
- Members of armed forces as defined in Army Act, 1950, Air Force Act, 1950 and Navy Act, 1957 including members of the auxiliary forces or reservists, serving in state.
- Badli workers of the textile industry.
- An individual suffering from the permanent physical disability (including blindness).
- Women exclusively engaged as the agent under Mahila Pradhan Kshetriya Bachat Yojana or Director of Small Savings.
- Individuals, above 65 years of age.
The Professional Tax is the source of revenue for state governments which helps in implementing schemes for a welfare and development of the region. The Professional Tax is deducted by the employers from a salary of the salaried employees and is deposited with state government. Other individuals pay it directly to government or by the local bodies appointed to do so.
Read our article: Mandatory Documents Required for Professional Tax Registration in India