Professional Tax

Most of the salaried employees are very well aware of the term known as ‘professional tax’. It is present in the format of salary slips or Form 16 that is provided to them. But some of them might not know what it is or why it shows up on their pay slips or Form 16 as a reduction from their salary. So, this piece tries to give a clearer picture of what and why professional tax is taken out and if people who are paid are the only ones who have to pay it.

A Professional Tax is what? Who pays it?

It is a tax that is imposed on all kinds of professions, trades, and employment and is charged based on the income of the respected profession, trade, and employment. Employees, persons carrying a business, including freelancers, professionals, etc.

Professional tax is a tax on the income applied by the state government. This is to note that not all the states in our country impose professional taxes. Though it is an income tax under Article 276 of the Indian Constitution, which addresses taxes on professions, trades, callings, and employment, the state government is also able to enact legislation relating to professional taxation.

The Objective and Importance of Professional Taxation

Professional tax assist several objectives and have significant importance in our country taxation framework. Let’s examine the main reasons for professional taxation and its importance.

Production of Revenue for State Governments: The main purpose of the professional tax is to provide revenue for the state government. The collected funds are used for development works, infrastructure, and social welfare schemes.

Encouraging Advancement and Equity: Professional tax follows a system where individuals with higher income are liable to pay high amount of tax. This aids in boosting equity that the persons who create more wealth contribute more for the state’s progress. It also helps in restructuring wealth and dropping inequalities to some degree.

Motivating Compliance and Formal Employment: The government supports individuals by levying a professional tax on them to be a part of the formal labor force that facilitates the organized sector. It acts as a perk for persons who are in search of employment through legal channels and resist the frequency of the hidden income or tax escape. It also encourages a sense of responsibility among professionals to meet their tax obligations.

Supporting through funding for Social welfare Programs: The revenue produced is used by the state government to fund the sectors of education, healthcare, infrastructure development, poverty reduction, and skill development. The success of these programs can be achieved with the help of professional taxation.

Impact of Professional Tax on State Development Projects: Professional tax is used by the state governments to fund area-specific development programs. These programs are related to local infrastructure, building roads, making educational bodies, supporting tourism, and improving the entire standard of living.

Required Documents for Professional Tax Registration

Following is the list of the documents that are required for the registration of Professional tax: –

• It is necessary for companies and Limited Liability Partnerships (LLPs) to present their Certificate of Incorporation or LLP Agreement, respectively.
• MOA (Memorandum of Association) and AOA (Articles of Association) of the company.
• PAN Cards of the Firm, LLP, Owner, Proprietor, and Directors in the Enterprise
• If you rent the space where the business is located, a NOC from the landlord is required.
• Passport-sized pictures of the company’s proprietor, owner, and directors.
• Documents proving the owner, directors, and proprietor’s address and identity. This usually refers to a voter ID, passport, Aadhar card, etc.
• Details about your workers, such as their names, residences, and the amounts provided to them in salary.
• Depending on your particular company operations and location, additional permits and registrations such as a GST registration, a shop and establishment license, etc., may be necessary.