What is Professional Tax?

Professional tax on salary is deducted every month, depending on your CTC. You will see a deduction under the heading 'Professional Tax' on your monthly payslips.

The state government imposes this professional tax on the salary of anyone earning beyond a certain limit. In contrast to the definition of a professional, which includes individuals like doctors, this is a tax that every person who earns an income is required to pay. State-by-state variations in calculation and sum collected exist, although there is a cap of ₹2500 each year.

Why is Professional Tax on Salary Different for Everyone?

Given that it is a state-imposed tax, professional tax is different for different states. It is deducted in accordance with each state's declared slabs. Professional tax is also not charged in a few states and union territories. With the exception of the February payment, which is larger than the prior payments, the yearly professional tax is divided into 12 equal monthly payments.

In some cases, sources of income that fall within several sectors may also be subject to a different tax. For instance, a person operating a firm in the transportation industry could be required to pay a professional tax of around ₹50 per year for each vehicle owned, with a possible ceiling of ₹1,000 per year.

How is Professional Tax on Salary Collected?

Employers deduct professional tax from employees' monthly salaries. They then pay it to the government; if they don't, fines for failing to collect or pay the professional tax on salary may be levied. 

You are responsible for paying the professional tax if you are self-employed. Professionals who do not have an employer might apply using a form to register for it. An individual will be given a registration number once the form has been received. Under these registration numbers, professional tax can be paid at banks. 

It is also important to keep in mind that, in certain jurisdictions, the government also offers rebates on taxes if they are paid in one lump sum over a number of years, so it is important to learn about the professional tax regulations in your state.

The Commercial Tax Department is in charge of collecting professional tax. The state's commercial tax division collects it and finally goes to the municipality corporation budget. Here are the people responsible for paying professional tax on salary:

• If an employee's income exceeds any financial thresholds imposed by the legislation of the individual states, the employer is responsible for withholding or paying professional tax to the state government on behalf of the employee.
• Employers (corporations, partnership businesses, sole proprietorships, etc.) who additionally practice their trade or profession are obligated to pay professional tax on such activities, again subject to any monetary thresholds established by the laws of the individual state. In this situation, the employer must register and get a professional tax enrolment certificate and a professional tax registration certificate to pay professional tax on his trade or profession and withhold the tax from his employees' salaries. Moreover, separate registration may be necessary for each office, depending on each state's laws.
• According to the legislative prerequisites set forth by the relevant state for any applicable financial level, individuals who run a freelancing business are also required to register. However, a professional tax charge is restricted by the applicable state's exclusions to particular categories. 
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Rates for Professional Tax on Salary 

Here is a table that provides you with the rates for professional tax on salary as imposed by the following major states across India:

Professional Tax on Salary - Applicability

The following categories of people are subject to professional tax:

• An individual
• Undivided Hindu Family (HUF)
• Whether incorporated or not, a company, firm, cooperative society, association of people, or group of people
  

The Bottom Line

If you’re still wondering how to calculate professional tax on salary, you first need to check if it is applicable in your state. You can take a look at your state’s tax slab and find out the amount for your professional tax on salary. It has to be determined keeping your salary sum in mind. 

Frequently Asked Questions

1. How much professional tax is deducted from salary?

The amount of professional tax on salary would vary based on the state’s slab rates. 

2. How is professional tax calculated on salary?

You can calculate the professional tax on salary by finding out the slab rates imposed in your state. 

3. Can professional tax be refunded?

In accordance with section 237, a person who can demonstrate to the Assessing Officer that the tax amount paid by them or on their behalf for the year, is more than the amount of tax that is due, is entitled to a refund of the excess tax paid by them.