Professional Tax Registration

As a professional working in India, you may be liable for paying professional tax to the state government. This tax is levied on individuals who earn an income through their profession, trade, calling, or employment and is aimed at generating revenue for the government and ensuring that professionals contribute their fair share towards the development of the country. If you are unsure about whether or not you need to pay professional tax, or how to register for it, read on to learn more about professional tax registration in India.

1. What is Professional Tax?

Professional tax is a direct tax imposed by the state or union territory governments on individuals earning an income through a profession, employment, calling, or trade. The tax calculation and amount collected may vary from one state to another but it has a maximum limit of INR 2500 per year. It is deducted from the income of salaried and wage earners by the employer and deposited to the state government. However, other classes of individuals are required to pay the tax themselves. The liability to pay professional tax arises from the fact of being engaged in a profession, trade, or calling, regardless of the fact of earning any income from it. The tax is applicable to all kinds of professions, trades, and employments.

This tax applies to partnerships, LLPs, sole proprietors, and companies. The professionals earning an income from salary or other practices such as a lawyer, teacher, doctor, chartered accountant, etc. are also required to pay professional tax. However, certain individuals such as parents of children with permanent disability or individuals suffering from a permanent physical disability or blindness are exempt from paying the tax. It is important to note that professional tax registration is mandatory within 30 days of employing staff in a business or starting a practice. Failure to comply may lead to the imposition of penalties by the tax department. 

2. Who is liable to pay Professional Tax?

Professional Tax is levied on individuals who earn a living through any profession or occupation. In India, state governments impose this tax, although it varies from state to state. The tax ranges from ₹200 per month, and individuals are subject to pay if they exceed the monetary threshold income provided by their state’s legislation. There are certain exemptions for individuals who are not liable to pay, including those aged 65 and above, parents or guardians of children suffering from a permanent or mental disability, and members of the Army Forces. The tax is applicable to all employees, including salaried individuals, who must pay professional tax. Employers are responsible for deducting the tax from their employees’ wages and paying the amount collected to the appropriate government department. Self-employed individuals are liable to pay the tax themselves to the state government. The Commercial Taxes Department of a state or union territory collects the professional tax based on predetermined tax slabs. The tax is calculated on the annual taxable income of the individual and can be paid either annually or monthly. Overall, every individual earning an income through any profession or occupation is liable to pay the professional tax in India. 

3. Professional Tax applicability in different states

Professional is a state-imposed direct tax that varies in its applicability across different states in India. Majority of states have provisions for profession tax but few states like Delhi and Haryana don’t impose it. The rates at which this tax is charged are established through tax slab or as a percentage value by state governments. For example, Andhra Pradesh charges no profession tax for those earning less than Rs. 15000 while for Karnataka, profession tax is charged for all those earning more than Rs. 15000. West Bengal-based employers have to pay up to Rs. 200 per month for employees earning more than Rs. 25,000. Power to levy and collect Profession Tax rests with the state government and this tax is levied on various categories of persons such as individuals, firms, association of individuals, Hindu Undivided Families, and companies. The tax is calculated based on an individual’s annual income and can be paid either on a monthly or annual basis. Failing to pay profession tax attracts penalty charges. This tax is deductible under the Income Tax Act, 1961, and is payable by self-employed individuals or by the employer of any company or firm depending on the state in which you are working. 

4. Employer’s responsibilities for Professional Tax

As an employer, it is your responsibility to ensure that professional tax is deducted from the salaries of your employees and that the appropriate amount is deposited with the government. You must also file a return with the tax department within the prescribed time frame and include proof of payment. Failure to do so may result in penalties and legal consequences.

According to the Professional Tax Rules, if an employer fails to deduct the professional tax from the salaries of his employees, he will be held liable to pay the amount due. Thus, it is in your best interest to comply with the tax regulations to avoid any legal and financial complications.

It is important to note that the professional tax is calculated based on predetermined tax slabs, which vary for each state and territory. The maximum amount payable per annum towards professional tax is INR 2500. The tax is deducted from the employee’s income every month and is calculated based on annual taxable income.

In addition to deducting and depositing professional tax, employers are also responsible for submitting the necessary documentation and returns in the prescribed format within the specified time frame. Failing to include proof of payment will result in an incomplete return, making it invalid.

As an employer, it is crucial to be aware of your responsibilities and take the necessary steps to comply with the professional tax regulations to avoid penalties and ensure smooth operations of your business. 

5. Exemptions from paying Professional Tax

Professional tax is a levy imposed on individuals pursuing a profession, trade or employment in India. Though it is mandatory for most economic contributors to pay professional tax, some people are exempted from paying it. The following are the categories of individuals who do not need to pay professional tax:

– “Parents of children with permanent disability or mental disability” are exempted from professional tax payments, which is a great relief for families with a child necessitating special care.

– The Government has shown sensitivity towards the sacrifices made by the armed forces personnel. Hence, “Members of the forces” and “reservists” serving in the State, are exempted from paying professional tax.

– “Badli workers” in the textile industry, who are daily wagers, have been excluded from the purview of professional tax payment.

– “Individuals suffering from a permanent physical disability (including blindness)” have been spared from paying professional tax, catering to their unique needs.

– Women working in the Mahila Pradhan Kshetriya Bachat Yojana are “exclusively engaged as agents” and are thus not required to pay professional tax. Parents/guardians of individuals with mental disability, and senior citizens aged 65 years and above, are also exempted from paying professional tax.

However, for professionals who are not encompassed in any such exempted category, professional tax payment is mandatory for the growth and development of the nation. 

6. Procedure for Professional Tax Registration

The procedure for professional tax registration in India is pretty straightforward. The registration process involves filling an application form and submitting the necessary documents to the registration authority. Here are the steps that one needs to follow to register for professional tax:

1. Firstly, the applicant needs to fill the application form for professional tax registration. The form varies depending on the nature of the business.

2. After filling the form, the applicant needs to submit it to the registration authority along with the relevant documents. The concerned authorities will then process the application and verify the authenticity of the documents provided.

3. Once the verification is complete, the registration authority will issue a registration certificate, which is valid for five years from the date of issue.

4. The applicant will be provided with a unique Tax Payer Identification Number (TIN) upon successful registration.

5. It is important to note that all businesses employing one or more employees are required to obtain a professional tax registration certificate within 30 days of the appointment of staff.

“Getting registered under Professional Tax is an important step for any business owner or self-employed professional in India. It not only ensures compliance with the relevant tax laws but also avoids potential penalties for non-compliance. With the help of a tax professional, the registration process can be completed smoothly and efficiently.” 

7. Enrolment under Profession Tax Act

Enrolment under Profession Tax Act is a crucial step for every professional liable to pay professional tax in India. As per the provisions of the Act, it is mandatory for a professional to register themselves within 30 days from the date of commencement of their profession. The Act focuses on taxing professions, trades, callings, and employments, where income is earned in the form of salaries or wages.

To apply for enrolment under the Profession Tax Act, the applicant has to submit the application form along with the relevant documents to the appropriate state tax department. The applicant can also apply online through the official website of the state government. Upon successful verification of the submitted documents, the department will issue a certificate of enrolment.

It is important to note that enrolment is not a one-time process, but a recurring annual process. The certificate of enrolment must be renewed every year and the professional must continue to pay the professional tax.

The enrolment process may seem complicated, but it is actually a straightforward procedure that can easily be completed through the state tax department’s website. The importance of enrolment lies in the fact that it helps the government to keep a record of all professionals liable to pay professional taxes. Moreover, it not only ensures compliance with the law but also safeguards the interests of the professionals.

In conclusion, enrolment under Profession Tax Act is mandatory for all professionals earning income in the form of salaries or wages. The process can be completed through the appropriate state tax department’s website and needs to be renewed annually. This helps the government in keeping track of all professionals liable to pay professional taxes and also ensures the smooth functioning of the system.

8. How to apply for Professional Tax Registration

Professional registration is mandatory for all businesses and individuals falling under its ambit, and the process to apply for registration is quite simple and straightforward. To begin with, the application should be made to the assessed state tax department within 30 days of employing staff for his business. If the assessee has more than one place of work then the application should be made separately to each authority with respect to the place of work under the jurisdiction of that authority.

To apply for professional tax registration, you need to follow the steps given below:

– First, you need to obtain the application form for registration.

– The next step is to fill in the necessary information in the application form such as name, address, PAN details, details of employees, etc.

– Once the form is duly filled in, the applicant needs to submit the same along with the required documents to the relevant state tax authority.

– After completing all the formalities and submitting the necessary documents, the tax authorities will issue the registration certificate.

It is important to remember that registration for professional tax is mandatory and non-compliance may lead to penalties and legal action. In addition to mandatory registration, the benefits of paying professional tax include legal compliance, nominal tax obligations, and freedom from heavy penalties. Ensure that you keep yourself updated on the relevant state laws and regulations when it comes to professional tax registration, and seek professional guidance if needed. 

9. Tax Payer Identification Number (TIN)

A Taxpayer Identification Number (TIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to individuals and businesses for tax purposes. TINs are used by the IRS to identify taxpayers and process tax returns.

One type of TIN is the Social Security Number (SSN), which is assigned to individuals for social security purposes and also serves as a TIN for tax purposes. Another type of TIN is the Employer Identification Number (EIN), which is assigned to businesses for tax purposes.

To obtain a TIN, individuals and businesses can fill out Form W-9 Request for Taxpayer Identification Number and Certification. This form is used by individuals and businesses to provide their TIN to other parties, such as employers or clients who must issue tax forms.

It is important for taxpayers to ensure that their TIN is correct and up-to-date to avoid issues with taxes or tax forms. According to the IRS, “If the TIN provided is incorrect, the payer or broker may be subject to a penalty for each failure to report correct information.”

Renewing or obtaining a TIN can be done online through the IRS website or by submitting Form W-12. The fee for a TIN is $50 and is non-refundable. Taxpayers can also seek assistance from tax professionals who are registered with the IRS and have a Preparer Tax Identification Number (PTIN).

In summary, a TIN is a unique nine-digit number assigned by the IRS to identify taxpayers for tax purposes. Taxpayers can obtain or renew their TIN through the IRS website or by submitting Form W-12. It is important to keep TIN information up-to-date to avoid tax issues. 

10. Issuance of Registration Certificate and its validity

Once application for Professional Tax Registration is approved, the Registration Certificate should be issued within one working day in accordance with the Profession Tax Act & Rules. The certificate is issued by the Registering Authority, who is the Deputy Commissioner of Taxes of a circle. If no gaps are found in the registration application, the dealer can initiate all their business activities on receipt of the scanned certificate. The Original certificate shall be couriered/sent by RPAD to the premises of the dealer by the Registering Authority.

In case of any gap found in the registration application, the Registering Authority may return the application to the dealer by recording the reasons in writing and provide the dealer with 7 days of time to respond to the query. The validity of the Registration Certificate is for a period of 5 years from the date of its issuance. After five years, the certificate must be renewed. It’s important to note that the certificate is not transferable and must be surrendered to the Registering Authority if the dealer no longer falls within the scope of Professional Tax Registration. The PTIN, a unique 11-digit number, is issued to successful applicants, which must be used for all tax purposes. Separately, the Enrolment Certificate is issued under the same PTIN for those required to enroll annually under the Act. 

11. Documents required for Professional Tax Registration

When applying for Professional Tax Registration in India, it is important to have all the required documents prepared beforehand. The documents required for Professional Tax Registration in Chennai, for instance, include a duly attested PAN card of the company/LLP, incorporation certificate, MOA & AOA / LLP agreement, and board resolution or consent statement of partners. Additionally, bank account details of the company, passport size photographs of all directors, and ID and address proof of all directors are required. If the company owns the premises, a premises proof is needed, or a NOC from the owner of the company premises if not.

To submit the application form, you can obtain it from the Corporation of Chennai at Ripon Building or through their online portal. Once the application form is submitted, you will receive an acknowledgment number for filing along with the profession tax registration number. No fee is required at the time of submission.

It is essential to comply with paying professional tax, as it is a judicial requirement and avoiding it can lead to penalties or legal issues. Fortunately, professional tax is simple and easy to comply with, with minimal restrictions and straightforward monthly or annual compliances. Kanakkupillai offers expert assistance to ensure legal compliance for taxation and other business requirements. 

12. Frequently Asked Questions about Professional Tax Registration

Professional tax registration can be a confusing and daunting process for many individuals. To simplify the process and clear up some common doubts, we’ve compiled a list of frequently asked questions:

1. Who is supposed to pay professional tax as an employer?

“Every employer is supposed to deduct the professional tax from the employee’s wages or salary and pay it to the government as per the Profession Tax Act.”

2. Who is required to get the Certificate of Registration (RC)?

“Every employer who pays the professional tax to the government by acquiring it from the employees is supposed to get a Certificate of Registration (RC).”

3. When does the employer become liable to pay the tax?

“The liability date is when the employer pays the wages to the employees and collects the tax by deducting it from the salaries for the first time.”

4. What comes under the scope of wages and salary?

“Salary or wages includes the basic payment dearness allowance house rent allowances and other remunerations paid to an employee regularly.”

5. What is the specified time the employer can pay professional tax?

“The employer can pay the tax by the 21st day of the following month.”

6. How can an individual pay professional tax?

“One can pay the tax with the help of the GRIPS portal. The employer must pay the tax after getting the certificate of enrollment from the GRIPS portal against the registration number.”

7. On obtaining a certificate of registration, should the individual file a return?

“Yes. After getting the certificate of registration, the individual must file a return.”

8. On obtaining the registration certificate, how can one file a return?

“One can file the return online with the help of a specific website. Also, one must submit a hard copy after paying the tax.”

9. What categories of people are supposed to pay the tax?

“The people of the following categories are liable to pay the taxes: firm, company, Hindu undivided family, society, corporation, club, association, or some other corporate body.”

10. If the employer is registered under MVAT Act, is it necessary to register for the professional tax Act?

“Yes. An employer must register for the tax Act who has registered for the MVAT Act. But he must have employed one or more persons with a salary of more than INR 5000.”

11. What is the last date to obtain the certificate of registration from the employer?

“Per the rules and regulations, the last date to apply for the certificate of registration is the thirtieth day from the start of employment or practice.”

12. What are the penalties or interest rates for late payment of professional tax?

“In states like Karnataka, the interest rate on late tax payments is 1.25% and the penalties can even range up to 50% of the total tax amount. Hence, one must try to avoid late payments of taxes.”

By keeping these FAQs in mind, individuals and employers can ensure a smooth and hassle-free professional tax registration process, while avoiding any potential penalties or interest rates for late payment.