Working as a salaried employee in India, you may have come across professional tax on salary being deducted from your total compensation every year. It is an important tax that helps support the development of the nation and the budget of the government. If you aren’t very familiar with the tax on salary concept or have recently joined the workforce, this blog will guide you through everything you need to know about professional tax. Let’s begin with the basics:
What is Professional Tax?
A professional tax on salary is a tax imposed by the state government on those who are engaged in any profession, trade, calling, or employment. It is a form of indirect tax, which means that it is paid by the individual but collected by the employer. The tax is collected on a monthly basis and is based on the employee's salary.
Who is Liable to Pay Professional Tax?
Professional tax on salary is levied on all individuals who are earning an income from any profession, trade, calling or employment. This includes salaried employees, self-employed individuals, freelancers, and business owners. The tax is deducted from the salary of salaried individuals by their employer, and self-employed individuals are responsible for paying the tax themselves.
Purpose of Professional Tax on Salary
The purpose of the professional tax is to generate revenue for the state government. The funds collected through tax deductions on salary are used for various government programs and initiatives, such as education, healthcare, and infrastructure development. The state governments in India use the revenue collected from professional tax to fund various public services such as schools, hospitals, and roads.
Calculation and Collection of Professional Tax
The amount of professional tax on salary that an employee must pay depends on the state in which they reside. Each state in India has its own tax deduction on the salary slab, which is based on the employee's salary. The tax slab ranges from a few hundred rupees to a few thousand rupees per year. The slab is usually divided into different categories based on the salary of the employee, and the tax rate increases as the salary increases.
The professional tax on salary is collected by the employer and is deducted from the employee's salary on a monthly basis. The employer is responsible for paying the collected tax to the state government. The employee can claim the tax on salary paid as a deduction from their income tax liability under Section 16 of the Income Tax Act.
Exemptions and Relief
Some states in India provide exemptions and relief for certain categories of employees. For example, women, senior citizens, and people with disabilities may be eligible for a lower professional tax rate. Additionally, some states provide exemptions for employees whose salary is below a certain threshold.
Tax deduction on salary is also available for professional tax paid. As per the Income Tax Act, an employee can claim a tax deduction for the proficient tax paid during the financial year. This tax deduction can be claimed under Section 16 of the Income Tax Act, which is for the purpose of computation of total income.
Final Thoughts
By understanding how the professional tax on salary works, the calculation and collection process, exemptions and relief available and the way it can be claimed as a deduction on salary, you can ensure that you're aware of the deductions from your salary and are able to manage your finances accordingly successfully. In case you require assistance in dealing with your professional tax on salary, please feel free to get in touch with our team at Lawgical India, and we will be happy to assist you.
