Do you know about professional tax? Which states impose it? Are you also supposed to pay professional tax?

Professional tax is charged by a state's commercial tax department on persons earning a wage in that particular state. Employers have the right to deduct tax before paying their employees' salaries.

The state government collects professional tax, whereas the federal (central) government collects income tax. Image: Freepik

Whether you are a company employee or a businessman, you have to pay professional tax. Before delving deeply into more details, let's first know what professional tax is.

Professional tax is charged by a state's commercial tax department on persons earning a wage in that particular state. Employers have the right to deduct tax before paying their employees' salaries.

Because this is a state-specific statute, each state has its own set of rules, interest rate, and deadlines. Employees in various wage groups are required to pay varied amounts of professional tax. Professional tax is not expected to be paid by people staying in Union Territories.

Difference between professional tax and TDS

TDS (tax deduction scheme) is frequently confused with professional tax. However, there is a significant difference between the two.

The state government collects professional tax, whereas the federal (central) government collects income tax.

The state government governs professional tax, which is imposed solely on those who earn a living by practicing their profession. Professional taxes must be paid by people such as physicians, engineers, teachers, and accountants. This tax may vary from state to state.

The federal government, on the other hand, imposes income tax on company owners and employees who make money from various goods or services and their occupations. Income tax is a required levy for all NRIs and is non-negotiable. Because the central government decides on income tax rates, the tax slabs are the same in each state.

States where people pay professional tax

Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Punjab, Puducherry, Sikkim, Tamil Nadu, Telangana, Tripura, and West Bengal are the states where people pay professional tax.

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What if someone doesn't pay professional tax?

Individuals who fail to pay professional tax may have to pay a late penalty as well as daily interest based on the total amount owed each year. Each state has its own rules.

Individuals who do not pay professional tax, for example, in Gujarat, face a late payment charge and daily interest at a rate of 18 per cent of the total amount owed each year.

In Tamil Nadu, however, a 10 per cent extra penalty is imposed for failure to pay professional tax. If employers or individuals supply fraudulent or erroneous information, they must pay a penalty equal to three times the amount of tax payable.

Similarly, non-payment penalties vary from state to state.

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