What is Professional Tax?

Professional tax is a tax levied by state governments on income earned through employment, profession, trade or calling. It is deducted by the employer from an employee's salary each month and deposited with the respective state's commercial tax or professional tax department. Not every state levies it — each state that does sets its own slabs and administration under its own Professional Tax Act or similar legislation.

• Salaried employees in states that levy professional tax, where the employer deducts and deposits it on their behalf.
• Self-employed professionals and traders in those states, who are usually required to register and pay it themselves.
• States and union territories that do not levy professional tax have no such deduction.

Each state publishes its own income slabs and tax amounts, typically deducted monthly from salary. Under Article 276 of the Constitution of India, the total amount of professional tax payable by any one person to a state in a year is capped — states cannot levy beyond that constitutional ceiling, though the exact amount within the ceiling, and the slabs leading to it, differ by state.

Employers with professional-tax registration (an Enrolment Certificate or Registration Certificate, depending on the state) must deduct the correct slab-based amount and file periodic returns with the state department.

• Applying one state's slab to employees working from a different state.
• Not registering for professional tax when opening a new branch or hiring in a new state.
• Missing state-specific due dates for monthly or annual professional tax returns, since each state runs its own compliance calendar.