Professional Tax is a direct tax levied by State Governments on income earned by way of profession, trade or employment. The Professional Tax is not being levied in all States. While some States levy this tax some States do not levy this tax. The States who have levied this tax have different slabs / rates. Thus, the liability for payment of this tax is not uniform in all States. This tax (like income tax) is levied based on slab basis on the Income earned by an Individual from his profession.
When this tax was first introduced, the maximum limit of the tax to be collected was ₹ 250. This limit was raised from ₹ 250 to ₹ 2500 in the year 1988. For the past few years, State Governments have been requesting for raising the ceiling from ₹ 2500 to ₹ 7500. However, their request has not been accepted and the Maximum Amount of Professional Tax that can be levied by any State Government is ₹ 2,500 only.
In case of Salaried and Wage earners, the Professional Tax is liable to be deducted by the Employer from the Salary / Wages of the employee and the Employer is liable to deposit the same with the state government. In case of other Individuals, this tax is liable to be paid by the person himself to the State Government.
The Professional Tax paid to the State Government is allowed as a deduction under Section 16 of the Income Tax Act and Income Tax on the Balance Amount is levied as per the Income Tax Slab Rates in force.