How Much Is The Professional Tax In India?

Profession tax in India is the tax imposed on a person who earns a living using one or more professions. Profession tax in India is levied to provide the government with additional revenue from the people involved in professional activities to support various social welfare schemes and services for all classes- poor, middle-class, and affluent.

A person or an entity can be earning a living using one or more professions if the profits made by that individual or entity are entirely derived from their work. Profession Tax is levied under Section 194B of the Income Tax Act 1961 on all Indian residents who earn an income by practicing any profession. It does not apply to foreign citizens who run businesses in India unless they are Indian residents. People involved in professions exempt from tax under Income Tax Act 1961 are not liable to pay Profession Tax. This includes Chartered Accountants, Advocates, Chartered Engineers, Cost & Works Accountants, and Security Exchanges Bureaux members.

Profession Tax is deducted by the employer/business organization where the person is employed, and it is to be submitted by the employer to the concerned department of State Government. The amount collected as tax by the employers is kept in a separate account under the name of Profession Tax Fund. This fund can be used for various projects for social welfare, development, etc. The employees are not allowed to withdraw this amount unless they have reported income tax returns or filed an income tax exemption application.

Profession Tax Fund may be used for schemes like pension schemes, maternity benefits, subsidy on costly drugs. It may also be used for Skill Development Programmes, organizing industrial training programs to provide training to unemployed youth to get them employed.

Profession Tax is a form of tax on income earned within a country, a direct tax on the taxpayer. In India, professional tax is levied at a very low rate on salaries and the employment income of professionals. An individual is liable to pay taxes in the following scenarios – 

• If the income is earned by individuals from their profession or business activities, in the form of salary and fees for services rendered, they must pay tax.

• The income of individuals who are not engaged in any profession or business activity but earn from their sources such as capital gains or interest is also liable to pay tax. It includes profits from real estate investments but excludes gains from trading stocks and shares.

•  The government levies professional tax in India on the income earned by professionals in India. Profession tax is deducted from the salary earned by a professional before paying income tax on their total gross salary.

• The professional tax for individuals is calculated based on two factors –

1.  The annual gross income excluding allowances and perquisites 
2.  The effective rate of professional tax applicable to different classes of professionals

There are 18 categories of professions under profession tax in India. These include engineers, architects, doctors, etc… Citizens with an annual gross income up to Rs. 2,00,000/- will not be liable for professional tax—however, an individual earning more than Rs. 2,00,000/- will be responsible for the professional tax.

•  Profession tax in India is charged on the total income (excluding allowances and perquisites), which is not exceeding Rs. 2,00,000/- per annum. For practice, professional tax is levied on two types of professionals 

1.  Self-employed professionals (other than company proprietor/partnership firm/proprietorship firm etc.)
2. Employees are working under any one or more employers (wages earners). The professional tax is calculated based on the gross annual income, i.e., without considering any deductions towards allowances and perquisites—a deduction of Rs. 50,000/- is allowed towards professional tax from each employee’s wages.

• To determine the gross income of a profession, the following factors are taken into account-

1.  Allowances and perquisites paid or payable.
2. Salary/wages/commissions received by a self-employed professional from different sources, i.e., taxpayers, clients, etc…
3.  Suppose a professional earns an income from renting their premises, e.g., rent made from the rented premise. 

• Profession Tax Slab is a thing where the tax is charged based on income. Profession Tax Slab is not the same throughout. The Profession Tax Slab in India are divided into two categories

1. Those who are self-employed
2. Those who are employees under any one of more employers

• Tax deducted at source (TDS) 

1. Profession Tax Rate for Individuals including companies- 18% of Gross Income 
2. Profession Tax Rate for Individuals including companies- 8% of Gross Income(before TDS) 
3. Profession Tax Rate for Companies/Partnership firms/ Proprietorship firm or any other business concern– 19% of Gross Income. 

• Professional tax not deducted at source (NTDS) 

1. Profession Tax equivalent to 6% of gross income
2. Profession Tax equivalent to 1.5% of gross income
3. Profession Tax equivalent to 0.25% of gross income
4. Profession Tax equal to 0.15% of net profit* 

*Net profit is the total profit after claim expenses have been deducted. 

Profession Tax Amount is based on the person’s gross annual income, other than an employee (other than companies, etc…).

For such professionals, professional tax is calculated as follows-

Profession Tax Rate for Individuals including companies- 18% of Gross Income

Profession Tax Rate for Individuals including companies- 8% of Gross Income(before TDS) 

Profession Tax Rate for Companies/Partnership firms/ Proprietorship firm or any other business concern– 19% of Gross Income. 

Profession Tax Amount: Rs.38,350+ Rs. 5,800 (for those who pay Profession Tax after deducting TDS) = Rs. 42,000.

It is mandatory to deduct Profession Tax from the gross income. However, a self-employed commercial professional can deduct professional tax from their business income, provided the total income is not more than Rs. 2,00,000/- per annum.

The amount of professional tax to be deducted from the salary will depend upon the category of professional. In the case of professionals who are not employees, it will be deducted from their salary before the addition of other deductions such as EPF contribution, Provident Fund, or any additional deduction made in respect of them.