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The ‘Professional tax’ could be one of those terms which do not completely convey the real meaning of the term. Unlike the name suggests, it is just not the tax levied only on professionals. It is a tax on all kinds of professions, trades, and employment and levied based on the income of such profession, trade and employment. It is levied on employees, a person carrying on business including freelancers, professionals, etc., subject to income exceeding the monetary threshold if any.

As per Article 246 of the Constitution of India, only Parliament has the exclusive power to make laws with respect to the Union List which includes taxes on income. The state has the power to make laws only with respect to the Concurrent and State list.

However, professional tax though is a kind of tax on income levied by State Government (not all states in the country chose to levy professional tax). The State Government is also empowered to make laws with respect to professional tax though being a tax on income under Article 276 of the Constitution of India which deals with tax on professions, trades, callings and employment.

It may be noted that professional tax is a deductible amount for the purpose of Income-tax Act, 1961 and can be deducted from taxable income. 

Professional tax is collected by the Commercial Tax Department. The commercial tax department of the respective states collect it which ultimately reaches the fund of municipality corporation.  

•  Persons who are carrying on freelancing business without any employees are also required to register themselves subject to the monetary threshold if any, provided by the respective State’s legislation. However, a professional tax levy is subject to the exemption provided by the respective State to certain categories. For example, parents or guardian of any person who is suffering from mental retardation, blind persons are exempted among others from levy of Karnataka Professional tax.

• In case of employees, an employer is a person responsible to deduct and pay professional tax to the State Government subject to the monetary threshold if any provided by respective State’s legislation.

• An employer (corporate, partnership firm, sole proprietorship etc) also being a person carrying on trade/profession is also required to pay professional tax on his trade/profession again subject to the monetary threshold if any provided by respective State’s legislation.  In such a case, the employer needs to register and obtain both a professional tax registration certificate to be able to pay professional tax on his trade/profession and professional tax enrollment certificate to be able to deduct the tax from his employees and pay. Further, separate registration may be required for each office depending on the respective State’s legislation.