Professional Tax Registration

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    Overview

    Professional Tax is a tax levied by State Governments in India on individuals who earn a living through employment, professions, or trades. The tax is collected by employers who deduct the tax amount from their employees’ salaries and deposit it with the concerned State Government.

    Significance of Professional Tax Registration

    1. Compliance and Legal Obligation: Professional tax registration ensures compliance with state laws and regulations, serving as a legal obligation that professionals need to fulfill.
    2. Resource Allocation: The tax revenue collected through professional tax registration is channeled into state coffers to fund essential services, infrastructure development, and public welfare initiatives.
    3. Professional Standing: Registering for professional tax enhances the credibility and standing of professionals and businesses in their respective industries, showcasing a commitment to regulatory compliance.

    Who Needs to Register for Professional Tax?

    1. Individual Professionals: This category includes doctors, lawyers, consultants, architects, engineers, and other self-employed professionals who offer services independently.
    2. Business Entities: Companies, partnerships, and firms providing professional services such as legal, accounting, or consulting services must also register for professional tax.

    Conditions

    Professional Tax registration is mandatory for employers in India who have employees working in the States where the tax is levied.

    Checklist

    1. Determine the State in which your business operates and whether Professional Tax is applicable.
    2. Check the applicable rates and slabs for Professional Tax.
    3. Ensure that the tax is deducted from employees’ salaries and deposited with the concerned State Government within the due date.

    Documents Required:

    1. PAN Card of the business
    2. Address proof of the business
    3. Copy of the Certificate of Incorporation (if applicable)
    4. Copy of the Memorandum and Articles of Association (if applicable)
    5. Copy of the GST Registration Certificate (if applicable)
    6. List of employees with their salaries and designations
    7. Identity proof and address proof of the authorized signatory

    Professional tax differs across states

    State-Specific Authority: 

    Professional tax is a levy imposed by individual state governments, not the central government. This allows each state to tailor it to their specific needs and priorities. Each state sets its own income slabs for professional tax. These slabs determine the tax amount based on your income level. This can lead to different rates across states for the same income bracket.

    Exemptions and Additional Taxes:

    Some states may completely exempt certain professions or income levels from professional tax.

    Additionally, a few states might impose separate professional taxes on specific sectors, like transport, calculated differently from the standard professional tax.

    Frequency and Calculation:

    • While some states follow a monthly deduction system, others might have quarterly or half-yearly payments. The calculation method for annual tax into installments may also vary.

    National Limit:

    • It’s important to note that there’s a national maximum limit of Rs. 2,500 per year for professional tax, regardless of the state. However, the actual amount you pay can be lower depending on your state’s structure.

    • Employers who have employees working in the States where Professional Tax is levied are liable to pay the tax.

    • The penalty for non-payment or delay in payment of Professional Tax varies from State to State. It can range from a fixed amount per day of delay to a percentage of the tax amount due.

    • Yes, individuals who earn a living through employment, professions, or trades and are not covered under the purview of employer registration can pay Professional Tax on a self-assessment basis.

    • No, Professional Tax is a recurring tax that needs to be paid annually or monthly as per the provisions of the respective State Governments.

    • Yes, Professional Tax registration can be cancelled in case the business or employer is no longer liable to pay the tax or has ceased operations.

    • Certain categories of professionals or individuals may be eligible for exemptions or deductions under specific conditions. Consult with tax authorities or professionals for detailed information on exemptions.

    • Professional tax payments made by businesses can usually be claimed as a deductible expense, reducing the taxable income and relieving the tax burden to some extent.

    • Maintaining detailed records of tax payments, registration certificates, and correspondence with tax authorities is crucial for tracking compliance status. Online portals may also provide updates on payment status.