Professional Tax in India: A Guide for Employers

Professional tax (PT) is a direct tax on income earned from employment, a profession, a trade or a calling. It is a state tax: each state that charges it has its own Act, its own income slabs and its own due dates. The money goes to the state government, and in some states to local bodies.

Article 276 of the Constitution of India allows states to levy this tax, and caps the total any one person can be charged at ₹2,500 a year. That is why no state's slab goes above ₹2,500 a year, however high the salary.

For a salaried employee, the employer deducts PT from salary each month (or each half year, in some states) and pays it to the state. Self-employed people and businesses pay it themselves.

Where a state levies PT, it usually applies to:

• Salaried employees whose monthly salary is above the state's lowest slab. The employer deducts it.
• Self-employed professionals such as doctors, lawyers, chartered accountants, consultants and agents.
• Businesses and traders, including firms, companies, cooperative societies, clubs and Hindu Undivided Families, as each state's Act defines them.

Most states set a minimum income below which no PT is due. The thresholds and slabs differ, and some states have separate slabs for women. For example, in Maharashtra a man earning more than ₹10,000 a month and a woman earning more than ₹25,000 a month pay ₹200 a month, with ₹300 in February, which adds up to ₹2,500 for the year.

PT is not charged everywhere in India. The table lists the states this site has a professional tax page for, with each state's Act, slabs, forms and due dates. Meghalaya, Sikkim and Puducherry also charge PT.

Where professional tax is not charged

At the time of writing, these states and union territories do not charge professional tax on salaries: Arunachal Pradesh, Delhi, Haryana, Himachal Pradesh, Rajasthan, Uttar Pradesh, Uttarakhand, Goa, Chandigarh, Ladakh, Lakshadweep, the Andaman and Nicobar Islands, and Dadra and Nagar Haveli and Daman and Diu.

Each state's Act has its own list of exemptions. Groups that many states exempt include:

• People aged 65 and above
• People with a permanent physical disability, including blindness
• Parents or guardians of a child with a permanent or mental disability
• Members of the armed forces, including auxiliary forces and reservists, serving in the state
• Badli workers in the textile industry
• Women working as agents under certain small savings schemes

Not every state exempts every one of these groups, and some add others. Check the state's Act, and keep the employee's proof of exemption on file before you stop deducting PT.

The employer is responsible for deducting PT from salaries and paying it to the state. In a state that levies PT, that usually means:

1. Register as an employer

Get a registration certificate from the state's tax department, usually within a set period of hiring the first employee who is liable. Some states also ask the business itself to enrol and pay PT as an entity. In Maharashtra, for example, these are two separate certificates: one for deducting from employees (PTRC) and one for the business's own tax (PTEC).

2. Deduct PT from salaries

Work out each employee's PT from the state's slab for their salary, and deduct it in the payroll run. An employee who works in a different state from head office pays the PT of the state they work in.

3. Deposit the tax on time

Pay the amount deducted to the state by its due date. Depending on the state and the size of the employer, this is monthly, quarterly, half-yearly or yearly.

4. File returns and keep records

File the returns the state asks for, and keep a register of salaries paid and PT deducted for each employee.

Every state's Act sets its own penalties. They commonly cover:

• Not registering when liable, usually a penalty for each day or month without registration.
• Paying late, with interest on the unpaid amount and sometimes a further penalty.
• Not paying at all, where the department can recover the tax with interest and penalty, including by attaching bank accounts, and can prosecute in serious cases.
• Not filing returns, with a late fee or penalty for each return.

Because the employer has already deducted the money from salaries, holding it back is treated seriously. Paying on time is the simplest way to avoid trouble.

Under the old tax regime, an employee can deduct the professional tax paid during the year from their salary income when working out income tax. The new tax regime does not allow this deduction. Employers should show the PT deducted on the payslip and in the employee's yearly tax statement, so it can be claimed where it is allowed.

For a business with staff in more than one state, PT is easy to get wrong in a spreadsheet: each branch follows a different slab, some states deduct monthly and others half-yearly, and February is often a different amount.

Niyuk payroll software works out applicable PF, ESI, TDS and professional tax in each pay run, and shows the deduction on every payslip. The state-wise details, forms and due dates are on our professional tax pages.