What is professional tax?

Professional tax is a state-level tax on employment, profession, trade or calling. It is deducted from an employee's salary by the employer and paid to the state government. It is not uniform across India. Each state has its own slabs, frequency and deduction months, as governed by the respective state's professional tax legislation and the Constitution's Article 276, which caps the annual collection at ₹2,500.

In some states, professional tax is deducted every month. In others, it is deducted half-yearly or annually. For example, in Karnataka, employees with monthly gross below ₹25,000 pay no professional tax, while those with gross of ₹25,000 or more pay ₹200 per month. In Maharashtra, the tax is ₹200 per month for salaries above ₹10,000, with a higher rate in certain months so the annual total reaches the cap.

Employers must register for professional tax, file returns and pay the tax by the due date. Late payment can attract interest and penalties.

Some states, such as Tamil Nadu and Telangana, use half-yearly or annual deduction patterns. Employers must obtain an enrollment certificate and file returns as per the state frequency. The professional tax paid by the employee is allowed as a deduction from gross salary under Section 16(iii) of the Income Tax Act, which reduces taxable income to that extent.

Worked example

An employee in Karnataka has a monthly gross salary of ₹28,000.

| State | Gross slab | Monthly professional tax | |---|---|---| | Karnataka | Below ₹25,000 | ₹0 | | Karnataka | ₹25,000 and above | ₹200 |

Because the gross is ₹28,000, the monthly professional tax is ₹200. This is deducted each month and remitted to the Karnataka Commercial Taxes Department.

Related reading

Use the professional tax calculator or read the statutory deductions guide.