In every state, the Commercial Tax Department is responsible for collecting professional taxes from taxpayers. Once the taxes are collected and deposited, they reach the municipal corporation’s account.
It is the responsibility of the following entities to collect professional taxes at the initial level –
- Employees whose salaries exceed the specified threshold limit for professional tax should have their employer deduct the applicable tax from their salary and deposit it with the State Government.
- Self-employed individuals and businesses must also pay professional taxes on their incomes. For this reason, they must register themselves and obtain a registration certificate, which can be used to pay the professional tax. Moreover, businesses should also deduct professional taxes from their employees and submit them to the state government once the certificate has been obtained.
- It is also necessary for freelance professionals to obtain a registration certificate for paying professional taxes.
How Does Professional Tax Payment Work?
The process of paying professional tax is governed by the rules formulated by the State Government. It is usually the case that states allow their taxpayers to pay the tax both online and offline. Additionally, states may require you to submit quarterly returns of the professional tax you have paid. To find out how you need to pay your professional tax, you should consult your State’s professional tax return filing
Violating Professional Tax Rules Can Have Serious Consequences
Your monthly income must exceed the threshold limit set by the state government before you are required to register for professional tax. The tax should also be paid within the deadlines imposed by the respective state governments. You might be penalized if you don’t register for or pay the professional tax or you don’t pay it within the due date.
The penalty amount depends on the violation rules specified by your State. Each State stipulates different penalties for non-compliance with professional tax rules. You should check with your State Government about the penalty amount.
Exemptions From Professional Taxes
Certain taxpayers are exempt from professional tax even though it is a mandatory requirement. These include the following:
- The parents or guardians of children with permanent mental or physical disabilities
- The taxpayer suffers from a permanent physical disability, such as blindness
- Those over the age of 65 who are taxpayers
- Auxiliary forces and reservists who are serving in the State are also exempt from paying professional tax under the Air Force Act, 1950, and Marine Act, 1952.
- Workers who work in the textile industry on a temporary basis
- Those who work as Mahila Pradhan Kshetriya Bachat Yojana agents
Using alternative methods to reduce your tax liability
The professional tax on your income applies whether you are a self-employed professional, a professional who runs a business, or a salaried worker. However, you can reduce the amount of professional tax you owe by doing the following things:
- For a deduction under Section 80C of the Income Tax Act, 1961, invest in life insurance policies. Your premiums for life insurance plans qualify as a deduction from your taxable income. Furthermore, the benefits received are tax-free if certain conditions are met.
- Health insurance premiums can also be deducted under Section 80D. You can deduct up to INR 1 lakh with health insurance premiums for yourself and your parents.
- You can deduct up to INR 1.5 lakhs from ELSS mutual fund investments under Section 80C
- NPS helps you plan your retirement corpus and offers additional tax benefits under Section 80CCD (1B) on investments up to INR 50,000.
- Your principal repayments under Section 80C can be deducted, while your interest payments under Section 24(b) and 80EEA (subject to certain conditions) can give you tax benefits.
To avoid penalties and to comply with federal laws, you must know what professional tax is, how it is assessed, and how to pay it.
- Are salaried employees required to pay professional taxes?
Salaried employees do have to pay professional tax based on their state’s tax slabs. However, they are able to deduct their professional tax from their salary.