Explaining professional tax and its constitutionality

The Commercial Tax creates age-old confusion.  Let us discuss the professional tax. Professional Tax is the tax, which is imposed by the State governments at their discretion.  This is levied on persons pursuing a profession like on professionals including chartered accountants, advocates, doctor etc.  In India, not all states charge it making it a mandatory tax.

The logical question that arises is if professional tax is constitutional?  Some state governments impose this tax because it is a source of income for the state. As at date, there are 26 states that levy Professional Tax. These states are: Andhra Pradesh,  Chhattisgarh, Karnataka, Maharashtra, Tamil Nadu, Assam,   Gujarat, Kerala, Meghalaya, Tripura,  Bihar, Jharkhand, Madhya Pradesh, West Bengal, Manipur, Mizoram,  Orissa, Puducherry,  Punjab, Himachal Pradesh, Jammu and Kashmir, Nagaland,  Sikkim, Rajasthan and Telangana. The states and union territories with no Professional Tax are: Arunachal Pradesh, Delhi,   Goa, Haryana, Uttar Pradesh, Uttaranchal, Andaman and Nicobar, Chandigarh, Daman and Diu, Dadra and Nagar Haveli and Lakshadweep.

Now the question arises who is liable to pay professional tax, a company or its employees? Rajiv Dhand of Rajiv Dhand and Company explained that the “Professional Tax is similar to income tax, while income tax is collected by the Central Government, the Professional Tax is collected by the respective State Government, if has not made it exempt. Any individual who is working and earning income from salary, business or any kind of profession is liable to pay Professional Tax”.

Professional Tax on Directors

When questioned how Professional Tax is imposed on directors of a company, Rajiv Dhand explained that company would have to first obtain Professional tax registration certificate (PTRC). If directors are whole time directors or any of them is managing director, then such directors are considered as employees of the company and therefore company will have to deduct Professional Tax per month from the salary of each director and deposit such amount with concerned authorities in case of directors of each company(s). The directors in that case will not be required to obtain PTE Number separately. However, In case of directors other than whole time director or managing director, such directors will have to separately obtain PTE Number and will to have to pay 2500 independently annually.

Chartered Accountant, Kultar Singh says that it is the responsibility of the employee concerned to pay professional tax. He said that a company might pay professional tax on behalf of the employee and offset it from expenditure. He clarified that GST and Professional Tax were entirely different though good and services tax also includes services but professional tax was distinct.

The professional tax is collected from various professionals as listed in schedule of the Act. It is collected from salaried employees, directors as well as from professionals. In case of a company, directors of a company, self employed professionals, partnerships, individual partners, or owners of any business undertaken in the state, the liability of the tax depending upon their gross turnover in the preceding year. In some cases, the payment of tax is fixed and is to be paid irrespective of turnover. For example in state of West Bengal, owner of a factory has to pay professional tax only if the preceding year turnover is greater than 5 lakh and in case of companies there is a mandatory payment of rupees 2,500/- each year as professional tax irrespective of turnover.

Professional Tax slabs (state wise)

The Professional Tax is deducted by the employer from their employee every month and remitted to state exchequer and in some states sent to the Municipal Corporation. It is mandatory to pay professional tax.

Constitutionality 

It is constitutional because Article 276 of the Constitution of India provides that there shall be levied and collected a tax on professions, trades, callings and employments, in accordance with the provisions of this Act. Every person engaged in any profession, trade, calling or employment and falling under one or the other of the classes mentioned in the second column of the Schedule shall be liable to pay to the State Government tax at the rate mentioned against the class of such persons in the third column of the said Schedule. Provided that entry 23 in the Schedule shall apply only to such classes of persons as may be specified by the State Government by notification from time to time.

Senior Advocate at Punjab and Haryana High Court, Y.K.Kalia told that since Profession Tax is as per Article 276 of the Indian Constitution it is constitutional. He said that Article 276 of the Indian Constitution approves the State government to make laws in relation to the
subject of the Profession tax.

It says that since the laws are made by the parliament we cannot question regarding the law making power of the State government regarding the profession tax. He said that the owner of a business is responsible to deduct professional tax from the salaries of his employees and pay the amount so collected to the appropriate government department and furnish a return to the tax department as per law.

The person who owns a business is responsible for deducting the professional tax from the salaries of his employees and then pays them the amount so collected to the concerned state and file a return accordingly.

Maharashtra

Upto  5000/-                                             Nil

 5,001/- to  10,000/-                                 175/-

 10,001/- and above                                200/-*

*  300/- for the month of February

Andhra Pradesh

Upto  5000/-                                             Nil

 5,001/- to  6,000/-                                  60/-

 6,001/- to  10,000/-                                80/-

 10,001/- to  15,000/-                               100/-

 15,001/- to  20,000/-                              150/-

 20,001/- and above    200/-

 

Assam

Upto  3,500/-                                             Nil

 3,501/- to  5,000/-                                   30/-

 5,001/- to  7,000/-                                   75/-

 7,001/- to  9,000/-                                   110/-

 9,001/- and above      208/-

 

Chattisgarh

Upto  12,500/-                                            Nil

 12,501/- to  16,667/-                                 150/-

 16,668/- to  20,833/-                              180/-

 20,834/- to  25,000/-                             190/-

 25,001/- & above        200/-

 

Gujarat

Upto   2,999                                               Nil

  3,000/- to   5,999/-                                20/-

  6,000/- to   8,999/-                                40/-

  9,000/- to   11,999/-                               60/-

  12,000/- and above   80/-

 

Karnataka

Upto  9,999/-                                            Nil

 10,000/- to  14,999/-                             150/-

 15,000/- and above    200/-

 

Kerala

Upto  1,999/-                                             Nil

 2000/- to  2999/-                                   20/-

3000/- to  4,999/-                                   30/-

 5,000/- to  7,499/-                                 50/-

 7,500/- to  9,999                                     75/-

 10,000/- to 12,499/-                               100/-

 12,500/- to  16,666/-                              125/-

 16,667/- to  20,833/-                              166/-

 20,834/- and above   208/-

 

Madhya Pradesh

Upto  3,333/-                                             NIL

 3,334/- to  4,166/-                                   30/-

 4,167/- to  5,000/-                                   60/-

 5,001/- to  6,666/-                                  90/-

 6,667/- to  8,333/-                                  150/-

 8334/- and above       175/-

 

Meghalaya

Upto 4,166/-                       Nil

 4,167/- to 6,250/-               16.50/-

 6,251/- to 8,333/-               25/-

 8,334/- to 12,500/-           41.50/-

 12,501./- to -16,666           62.50/-

 16,667/- to 20,833/-          33/-

 20,834/- to 25,000/-        35/-

 25,001/- and above       38/-

 

Odisha

Upto 5000/-                       Nil

 5,001/- to 6,000/-             30/-

 6,001/- to 8,000/-             50/-

 8,001/-to 10,000/-            75/-

 10,001/- to 15,000/-          100/-

 15,001/- to 20,000/-         150/-

 20,001/- & above            200/-

 

Tamil Nadu

Upto 3,500/-                       Nil

 3501/- to 5000/-                16.50/-

 5001/- to 7500/-                39/-

 7501/- to 10000/-               85/-

10001/- to 12500/-              126.50/-

 12501/- & above             182.50/-

 

Tripura

Upto 2500/-                        Nil

 2501/- to 3500/-                 55/-

 3501/- to 4500/-                 85/-

 4501/- to 6500/-                100/-

6501/- to 10000/-               140/-

 10001/- and above         180/-

 

West Bengal

Upto  5,000/-                                   Nil

 5,001/- to  6,000/-                         40/-

 6,001/- to  7,000/-                         45/-

 7,001/- to  8,000/-                         50/-

 8,001/- to  9,000/-                         90/-

 9,001/- to  15,000/-                       110/-

 15,001/- to  25,000/-                     130/-

 25,001/- to  40,000/-                   150/-

 40,001/- and above    200/-

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