Professional tax is a state-level direct tax that applies to individuals or entities engaged in profession, trade, or employment. According to reports from Mint, this tax is generally deducted from eligible employees' salaries by their employers and paid to the state government. The annual limit cannot exceed ₹2,500 under Article 276 of the Indian Constitution. However, not every state imposes this tax, making it essential to check applicability before filing tax returns.
As reported by Mint, 19 states and union territories levy professional tax, including Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Odisha, Puducherry, Tamil Nadu, Tripura, West Bengal, and Jharkhand. In contrast, 14 states and union territories do not impose this tax, including Arunachal Pradesh, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Nagaland, Punjab, Rajasthan, Sikkim, Uttar Pradesh, Uttarakhand, Andaman and Nicobar, Chandigarh, Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep. Professional tax is not applicable to individuals whose income falls below certain state-specific thresholds.
According to the income tax department's website as reported by Mint, professional tax deducted from an employee's salary can be used to reduce taxable income and overall tax liability. The provision applies even if the tax was paid in advance during the year. However, if employers pay professional tax directly without salary deduction, it is first included as perquisite in the employee's income before allowing deduction from gross salary. Professional tax deduction under Section 16(iii) is not available under the new tax regime and can only be claimed if filing under the old tax regime in the relevant financial year.
As reported by Mint, professional tax is deducted monthly from gross salary and paid to the state government on behalf of employees. This deduction reduces the amount employees take home each month but is not included in the Cost to Company (CTC). All public and private-sector employees are mandated to pay professional tax in states that charge it, including salaried employees and professionals like doctors, lawyers, and consultants. In many states, self-employed individuals and business owners are also required to pay this tax.
