What is Professional Tax? And consequences of professional tax violations

A professional tax is a charge applied to all professions, jobs, and trades based on the income generated by each. Everyone of these jurisdictions has the authority to impose a fine for non-registration when professional tax policy is in effect. However, the specific dollar amount of the fine or other punitive costs will depend on state regulatory law. This blog will walk you through with the information on “What is Professional Tax?”, Advantages of a Professional Tax to the employee, and consequences of Professional Tax violations.

Introduction

Professional tax is presumably a term that most salaried employees are familiar with, Since it appears on their payslips on Form 16. But it is possible that every individuals may or may not understand what it is and why it appears as a deduction in their income on their payslips/Form 16. Therefore it is beneficial for an employed individual to know basics about Professional Tax and its consequences for not deducting professional tax.

A company must be registered in accordance with professional tax legislation. Furthermore, everyone is required to pay this tax based on their income threshold. Failure to register or pay the tax will result in penalties. Late payments are also subject to penalties. The penalty amount of a professional tax is different for each state as it is governed by each state government.

Meaning of a Professional Tax

Professional Tax is not a tax imposed just on professionals, as the word implies. Any person who earns a living through a profession, employment, trade, or any other way through which they earn an income is subject to this tax. The right to impose and collect Professional Tax is granted to the State Government under the provisions of Clause (2) of Article 276 of the Indian Constitution.

Similarly, many Indian states have chosen not to exercise this right. This tax is charged in all other states where it is appropriate, based on Professional Tax slab rates enacted by the individual States. No state, however, can impose a Professional Tax on any taxpayer over 2,500 INR. According to the Income Tax Act of 1961, Professional Tax payments can be deducted from taxable income.

Who has the authority to collect Professional Tax?

The collection of professional taxes is under the control of the Commercial Tax Department. It is managed by the State’s division of commercial taxes and ultimately goes to the budget of the municipal corporation.

If an employee receives a salary, their employer is required to deduct professional tax from their pay each month and deposit it with the government. The employer must get a Registration Certificate from the appropriate authorities in order to deposit the withheld tax.

While those who work for themselves, are engaged in their line of work, and are otherwise eligible must independently pay the professional tax to the state authorities. They must get an enrolment certificate from the relevant state government authority related to the professional tax.

Consequences of professional tax violations

When professional tax policy becomes applicable, all such jurisdictions may impose a penalty for failure to register. However, the precise amount of the penalty or punitive charges will depend on state regulatory law.

There are also penalties for failing to submit the return by the deadline and withholding payments after they are due.

The actual fine is determined by each state’s professional tax regulations. Businesses that fail to register, pay taxes late, or file returns on time may face fines, late fees, or imprisonment.

Failure to make a payment by the due date, as well as failure to file a return by the due date, carries additional penalties.

• For example, the following information outlines the penalty amount imposed by the Maharashtra Government for late filing or failure to pay Professional Tax in Maharashtra.

  • late registration incurs a penalty of Rs 5 per day, late payment incurs interest of 1.25 percent per month.
  • Late/non-payment of Professional Tax incurs a penalty of 10% of the tax amount.
  • Late submission of the return incurs a penalty of INR 1000 – INR 2000.

Conclusion

Salary workers, self-employed individuals, and businesses must pay Profession Tax on their earnings. The rates for Profession Tax slabs are set by the state government, with a maximum of INR 2500 per year. If you are a salaried employee, the Profession Tax will be deducted from your pay automatically, and the total tax will be paid by your employer. Individuals who are not salaried, on the other hand, can pay it online.