As an individual who is earning income, your source of income could either be through the organisation you are working for, or it could be through self-employment. Irrespective of your source of income, there is one tax that is levied on your income: professional tax. If you work for an organisation, you will notice this tax being deducted from your income in the salary slip. What exactly is this tax? Do you have to include this tax in your tax saving plan? Keep reading to know more.
What Is Professional Tax?
Professional tax is a type of tax levied by a state government on all individuals who earn a living through any medium. For example, if you are living in the state of Maharashtra and are employed in one of the cities in the state, professional tax will be levied on your income. As per the Article 246 of the Indian Constitution, states govts have the authority to levy professional tax on the income earned by individuals living in those states. However, this is not mandatory for every state and many states do not levy this tax. If you are an earning individual in a state where the tax is levied, you will have to pay it. As different states have different slabs based on the income, the tax collected differs accordingly. However, it has a limit of Rs. 2500 per year.
Who Is Liable To Pay This Tax?
Some of the following parties are liable to pay professional tax:
- Limited Liability Partnerships (LLP)
- Business firms
- Hindu Undivided Family (HUF)
- Co-op societies
- Insurance agents (life insurance and general insurance)
- Tax consultants
Who Collects This Tax?
If you are an employee working for a company, it is your employer who is responsible for deducting this tax from your salary and paying it to the state govt. For example, Hemant works for an MNC based in Mumbai. Hemant’s monthly income is Rs. 45,000. As per the professional tax slab rate for the state of Maharashtra, Hemant’s employer will deduct Rs. 200 from his salary as professional tax. Your employer is also responsible for registering and obtaining certificates related to the tax registration.
If you are a freelancer who is involved in business with various organisations, you are also liable to pay professional tax on your income. Unlike employees, you need to file for the tax by yourself. The tax levied will be based on your income and the slab it belongs to.
Are There Any Exemptions?
You can avail exemption from this tax in your tax saving plan if you fall under any of the following categories:
- If you belong to one of the defence forces, i.e., army, navy or air force
- If you are an individual who is suffering from disability. You need to have at least 40% disability to be eligible for this exemption
- If you run an educational institute which provides education up to 12th grade
- If you are a parent who has a disabled child
- If you run a charitable hospital which is present in a place below the taluk level
Penalties For Non-Payment Of The Tax
Depending on the state where you are employed, the state govt has set its penalty rates for those who fail to pay professional tax within the stipulated time period. There is also a penalty rate for failing to register for the tax. If you are in the state of Maharashtra, the penalty for late registration of this tax is Rs. 5 per day. An interest of 1.25% is charged on late payment of the tax. If you do not pay the tax or if there is a delay from your side, 10% penalty on the tax amount is applied. Also, a penalty of up to Rs. 2000 may also be applied for late filling. 
This is all the information related to professional tax. You can get in touch with your tax advisor to understand more about this tax. If you want to know how this tax affects your savings, you can use the income tax calculator to get an idea about it.