Why professional tax is deducted?

Since the term "professional tax" would have appeared on their pay stubs or Form 16, many salaried employees may be quite familiar with it. It is a state-level tax levied on salaried professionals, freelancers, and business owners under Article 276 of the Indian Constitution. But do you know why professional tax is deducted? If not, no need to worry. I have shared the reasons below.

Reasons for Professional Tax Deductions

It is deducted for the following key reasons:

1. State Revenue Generation: Collected by state governments to fund local infrastructure, healthcare, education, and civic amenities. Rates vary across states (e.g., Rs 2,500/year in Maharashtra, Rs 2,400/year in Karnataka).

2. Mandatory Compliance: Applicable to employees, self-employed individuals, and corporations earning above a threshold (usually Rs 10,000 to 15,000/month). Employers deduct it from salaries and remit it to the state government.

3. Slab-Based Taxation: Calculated on income slabs (e.g., 0% up to Rs 15,000/month, progressive rates thereafter). Maximum capped at Rs 2,500/year as per constitutional limits.

4. Legal Obligation: Non-payment attracts penalties (e.g., 10 to 20% fine + interest). Required for professional license renewals (e.g., CA, doctors).

I hope you found this helpful.

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Is Professional Tax Refundable?

Professional tax is deducted by the employer from the employee. When I first joined a private firm I was paid a very little salary. So, I was bummed when Rs. 200 was deducted from my salary which I earned. Later when I checked the payslip I realised that it was a professional tax which was deducted from my salary. At that time, I was pretty shocked since Rs. 200 was an amount which I didn't want to let go of. Later I realised why professional tax is deducted which helped me clear my doubts. So, I will explain my perspectives in brief.

Why professional tax is deducted from salary?

Professional tax is a tax levied by the state government. This tax is one source of revenue for the Government and is deducted from every employee for the betterment of professionals in every state. Thus, professional tax is deducted from salary. The maximum amount of professional tax is not more than Rs. 2,500 annually. 

1. Companies and Business Firms

2. Limited Liability Partnerships (LLP)

3. Corporations

4. Co-op Societies and Associations

5. Hindu Undivided Family

6. Clubs

7. Lawyers and Legal practitioners

8. Contractors

9. Architects

10. Engineers

11. Insurance agents

12. Chartered Accountants (CA)

13. Company Secretary (CS)

14. Surveyors

15. Tax consultants

16. Management consultants

17. Doctors and other medical representatives

1. Parents or guardians who have kids with a mental disability or permanent disability

2. An individual who is physically disabled.

3. Senior citizens above 65 years

4. Members of the forces who belong to the Army Act, 1950.

5. Temporary employees working in the textile industry

6. Women working as agents under the Mahila Pradhan Kshetriya Bachat Yojana

I hope you now know why professional tax is deducted from salary.

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