Overview

The nomenclature ‘Professional tax’Sometimes it fails to give its true meaning. It is a tax that is levied on all types of occupations, trades and employment. The tax is applicable on the basis of income of such profession, business and employment. In fact, business persons, freelancers, etc. are liable to pay tax if their income increases in monetary limit. Unlike the income tax which is levied by the central government, the state government levies a commercial tax. However, states like Delhi, Haryana and UP are exempted from professional tax.

Tax rate slab

Commercial tax is a state tax levied according to the slab provided by the respective states. Some states charge it at a fixed percentage while others take it as a fixed amount based on the income slab such as:

Commercial Tax Applicability

In the states where this is applicable, the following category of persons is subject to commercial tax:

• Personal
• HUF
• Private / Public / One Person Company
• Cooperative Society
• Person's Association
• Body of Individuals

Business tax paid

Professional tax is paid and at a pre-determined slab rate. It is collected annually or monthly by the commercial tax department of the respective state. Professional tax is paid directly by a self-employed person engaged in a profession or trade business whereas in the case of salaried employees, it becomes an employer’ Responsibility for reducing and depositing such tax to the concerned State Government.

In the case of a salaried person, the employer will collect such tax every month whereas a self-employed person has the freedom to pay professional tax monthly or annually. The self-employed taxpayer will obtain a certificate of nomination from the tax department of the respective state.

Who needs Professional Tax?

Self-employed personnel’s Those who are involved in any kind of profession and business and come under the purview of professional tax, are legally responsible for paying tax to the state government. Commercial tax is collected by the Commercial Tax Department of the State / UT. Tax slabs vary for each state and union territory. The tax applies to the annual taxable income of the person; However, it can be paid either monthly or annually. It is necessary for self-employed personnel to obtain a certificate of nomination from the prescribed authority (of the concerned state) in the prescribed manner.

In the case of salaried individuals and salary earners, professional tax is deducted every month from the salary of the employees. An employer cannot deposit the deducted amount without obtaining a certificate of registration from the concerned authority.

Benefits

The following are the reasons that one should never waive professional tax liability:

• Payment of professional tax is a judicial requirement and hence it can call for any penalty or prosecution, self-employed person and employer to avoid it, according to the rates provided by their respective state without any delay in their Will pay professional tax
• Professional tax is easy to follow. Regulations governing professional tax impose minimal restrictions and are easy to register with simplified annual / monthly compliance.
• The deduction can be claimed on previously paid professional tax.
• Professional tax is a state tax; therefore, it becomes a state government or local tax authority’s obligation to collect professional tax deducted on professional fees, business income, and salary.

Required Documents

List of documents required for obtaining professional tax registration:

• if the applicant is Company: COI, AOA & MOA
• If the applicant is LLP: LLP Agreement
• Company PAN
• Address Proof for Business
• Proof of identity of all directors
• Address proof of directors
• Passport size photograph
• Salary registers maintained by the company of its employees

Registration process

Dealers seeking professional tax registration certificate will follow these steps:

• Applicant can apply online through CTD portal
• Applicant will file the form and attach the required scanned documents (mentioned above)
• One can apply offline by submitting documents and application form directly to the concerned state government with the prescribed fee
• Once applying for registration, he should submit hard copy to the concerned tax department
• On receipt of an application, the tax authority will check for its correctness
• After the department scans and verifies the application, it will approve the same and issue the registration certificate to the applicant. The department may raise a question if it has found a defect in the application, which will be responded to in a timely manner.

Consequences of violation of commercial tax regulation

Fines are imposed on those individuals who fail to submit their professional tax. Once implemented, all states imposed penalties for not filing professional taxes. However, the amount of fine varies from state to state. In addition, states also penalize for failing to initiate any payment within the due date and also fail to file returns within the specified due date.

A penalty of Rs 5 / - per day is applied for the delay in registration of the certificate. In case of non-payment / late payment of profession, there will be a penalty of 10% of the amount of tax. A person is liable to pay Rs.1000 if there is a delay in filing the return. After one month, a fine of Rs2000 will be imposed.