New Delhi: Professional tax is a small but important tax many salaried individuals and professionals in India need to know about. Unlike income tax — which goes to the central government — professional tax is collected by state governments, and not all states impose it. This guide breaks down what professional tax is, who must pay it, where it’s applicable, and how it affects your cost-to-company (CTC) and take-home pay.
What Is Professional Tax?
Professional tax is a tax that some Indian states charge on individuals earning income from salary, profession, trade, calling, or employment. It’s regulated by state law, and the amount varies based on income slabs set by each state’s legislature.
Although the amount is usually small (often a few hundred rupees per year), it’s a legitimate tax deducted from salaries and remitted to the state government under the Constitution of India.
Who Has to Pay Professional Tax?
Not everyone in India pays professional tax. Here’s who typically must pay it:
Salaried employees whose employer deducts the tax from their salary.
Self-employed professionals such as doctors, lawyers, chartered accountants, traders, and consultants, if their state charges professional tax.
Business owners or partners in a firm who are liable under their state’s professional tax law.
However, whether you pay professional tax depends on the state you work or reside in and the tax slabs defined by that state.
Which States Charge Professional Tax?
Professional tax is not uniform across India. Some states or union territories do not levy it at all, while others have active schedules for this tax. States that commonly impose professional tax include:
Maharashtra
Karnataka
West Bengal
Tamil Nadu
Kerala
Andhra Pradesh
Madhya Pradesh
Delhi (in some categories and slabs)
Each state has its own income slabs and rates, which mean two people earning the same salary in different states might pay different amounts of professional tax — or none at all.
For example, a state might charge Rs 200 per month on employees earning above a specified threshold, while another might cap the annual professional tax at Rs 2,500 based on different income bands.
How Is Professional Tax Collected?
For Salaried Employees:
Your employer deducts the professional tax from your salary every month and pays it to the state government on your behalf. This deduction shows up under professional tax deductions in your salary slip.
For Self-Employed:
Professionals and business owners registered under professional tax laws must file returns and pay the tax directly as per their state’s process. The frequency (monthly, quarterly, or annual) depends on the state’s rules.
Does It Affect Your CTC or Take-Home Salary?
Yes — but in a specific way.
Cost to Company (CTC): Professional tax is generally included under statutory deductions in your CTC structure, but it’s a small component. It does not significantly change the overall CTC figure compared with income tax or employee provident fund (EPF) contributions.
Take-Home Salary: Because it’s deducted from your gross salary, professional tax reduces take-home pay slightly each month. However, the amount is usually minimal compared with major deductions like income tax and EPF.
For example, if your monthly salary is Rs 50,000 and your state levies Rs 200 per month as professional tax, your take-home salary will be Rs 200 less every month due to this deduction.
Professional Tax vs Income Tax: What’s the Difference?
It’s important to distinguish professional tax from income tax:
Professional Tax: A state-level tax, usually small, based on employment status or income. It’s deducted at source by employers for salary accounts.
Income Tax: A central government tax on total income, structured in slabs, which applies to all taxpayers depending on their overall earnings.
Both taxes can be deducted from your pay, but they serve different purposes and are governed by different authorities.
What If You Don’t Pay Professional Tax?
If a state has enacted professional tax laws and you are liable but fail to pay or register appropriately:
The state authority may charge penalties or interest for delayed payment.
Salaried individuals may see issues with compliance records if their employer does not deduct the tax when required.
Self-employed professionals may face enforcement actions under state tax laws.
Therefore, it’s important to know whether your state requires professional tax and ensure compliance.
The Bottom Line
Professional tax is a legitimate state-level tax deducted from your salary or paid directly by professionals and businesses. While it’s a small amount, it affects your take-home salary and needs to be managed properly.
Whether you pay professional tax depends on:
The state you work in
Your salary or income level
Whether you are salaried or self-employed
Regular deductions by employers and timely payments by self-employed professionals keep you in compliance and avoid penalties.
