Treatment of Professional Tax under Income Tax

In many states of India, professional tax is levied on businessmen as well as salaried employees. The businessmen could claim the professional tax so paid by him as a deduction in the form of business expenditure while calculating his taxable income. But it’s a question in the mind of every salaried taxpayer whether a deduction for professional tax is allowed to him or not. This article gives a reply to your question so please read carefully...

What is Professional Tax?

‘Professional Tax’ is a tax on professions, trades, and employment and levied on the basis of the income of such profession, trade, or employment. Professional Tax could be levied even on employees and freelancers subject to a minimum threshold limit. The Constitution of India empowers the states to levy professional tax.

However, not every state presently levies the professional tax. For example, in the State of Rajasthan, there is no professional tax applicable whereas the Maharashtra & Karnataka Governments levy the professional tax.

What are the rates of Professional Tax?

As discussed above, every state has been empowered to frame its own professional tax regulations. Therefore, the rates of professional tax differ from state to state. Article 276 of the Constitution empowers the State Government to levy professional tax but a maximum capping of Rs. 2,500 have been placed. Thus, no state could levy professional tax beyond Rs. 2,500.

Who is responsible to pay the professional tax?

• If you are an employee, then your employer is responsible to deduct professional tax from your gross salary and pay professional tax to the State Government.
• In other cases, like companies, LLP, firms, or even proprietorship concerns, the person carrying on the trade or profession is responsible to pay professional tax on his trade/ profession income.
• Therefore, it means that an employer will have to obtain a professional tax registration certificate to pay professional tax in respect of his trade/ profession as well as obtain a professional tax enrolment certificate to deduct and pay professional tax on behalf of his employees.

Who is responsible to collect professional tax?

Every state has a Commercial Tax Department which has been assigned the responsibility to collect professional tax and remit it to the Government exchequer.

What is the treatment of professional tax in Income Tax Return?

• Treatment of professional tax in the income tax return in case of a business

The businessmen or the professionals (including freelancers) can claim the professional tax paid by them as “business expenditure”. Such claim shall be made in the Profit & Loss Account prepared by them for the purpose of income tax return filing.

• Treatment of professional tax in case of employees

In the case of employees, the employer is responsible to deduct the professional tax from the gross salary of the employee. The details of the professional tax so deducted will be available in Form 16 issued by the employer. The employees shall be allowed the deduction of professional tax deducted by the employer from his/her salary while calculating the income under the head salaries. Please note that the deduction will be allowed only when the tax is actually paid by the employee. Professional tax due but not paid shall not be allowed as a deduction in the income tax return.

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