Understanding professional tax: What every employee and self-employed individual should know
The other day, I was sitting withtwo of myfriends—one a consultant and the other an employee—when the conversation turned to taxes. My colleague, an employee, was surprised to learn that he had been paying a professional tax of ₹200 every month, automatically deducted from his salary by his employer. The consultant, on the other hand, was fully aware of this tax, as he had to handle the payments himself.
This discussion led us to explore the concept of professional tax in India, a tax that many, especially the self-employed, might not even realise they need to pay.
Professional tax is a state-imposed tax and is not just limited to professionals. Those earning an income through a profession, trade, or employment, whether salaried or self-employed, are liable to pay it.
“Professional tax is levied by state governments and is mandatory for individuals regardless of whether they are employees or self-employed professionals," explained chartered accountant Prashant Hegde. «In case of employees, a threshold will be given on the basis of income and in case of self employment, experience could be one of the criteria. The tax is capped at ₹2,500 per year, as stipulated by Article 276 of the Indian Constitution.»
The tax operates differently for salaried employees andself-employed professionals or consultants. For salaried employees, the employer deducts the tax based on income slabs defined by each state and remits it to the state government on behalf of the employee. However, self-employed individuals, including consultants, must manage these payments on their own.
«Self-employed professionals have to register and pay the tax themselves, typically before 30 April every year,» Hegde.
This tax has been part of India's tax system
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