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All you must know about professional tax in 2022

[] Although professional tax is a tax on income levied by state,  all states in the country do not levy professional tax

What is professional tax?

All individuals who earn a living have to pay professional tax. 

You are reading: All you must know about professional tax in 2022

Who levies professional tax?

A tax on income is included in the Union List, which is subject to laws made by Parliament under Article 246 of the Constitution of India. Legislation can be made only with respect to the Concurrent and State lists.

Although professional tax is a tax on income levied by state,  all states in the country do not levy professional tax. Despite being a tax on income, state governments are empowered to make laws in relation to professional tax under Article 276 of the Constitution of India, which covers tax on professions, trades, callings and employment.

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In accordance with the Income-tax Act, 1961, professional tax is deductible from taxable income.

Who is responsible for paying and collecting professional tax?

Employers are responsible for collecting professional taxes from their employees. According to state legislation, the employer collects and pays the tax to the commercial tax department. A business owner who also works for an employer is responsible for paying professional taxes. This can be a corporate, partnership, or sole proprietorship employer. If the state government provides a monetary threshold for paying professional taxes, they will be required to pay it.

Employers must register themselves and obtain a professional tax registration certificate. They will need a professional tax enrolment certificate, which will enable them to deduct tax from their employees and pay it to the Commercial Tax Department. A separate registration is required in each state if the business needs to operate in several states.

Freelancers will also be liable for professional taxes based on any monetary threshold set by state legislation in their respective states. In addition to registering with the state, they will have to pay income tax according to their income threshold.

Professional Tax: What is the rate?

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In different states, different levels of professional taxes are imposed by the state government. The professional tax of each state is governed by laws and regulations. There is a slab system where all states levy a professional tax based on income.

Additionally, Article 276 of the Constitution which grants states the power to levy professional tax also provides for a maximum cap of Rs 2,500 above which no professional tax can be charged. 

Professional tax: Regulation violation

A business must register according to professional tax regulations. In addition, it is a tax that is imposed according to a threshold of income. Penalties apply if you fail to register or pay this tax. One may also be penalised if they do not pay on time. Non-filing taxes can also result in penalties in some states. The amount of penalty is different in every state.

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Category: Must Knows

Debora Berti

Università degli Studi di Firenze, IT

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