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What every business owner needs to know about professional tax

  • Highlights

  • Professional tax registration

  • Calculating the professional tax payable

  • Rules for deduction of professional tax from employees

  • How to make professional tax payments

As a business owner, you will need to deal with many state and central regulations regarding business licenses and taxes. One such state obligation is that of making professional tax payments. This a state tax and the amount payable and rules differ slightly in every state. Here is all the information you need to ensure your business collects and pays the correct professional tax each month.

1. Registration

As a business owner, you need two certificates:
a. Professional Tax Registration Certificate [PTRC]
b. Professional Tax Enrolment Certificate [PTEC]

Every state has its own rules governing professional tax, however, in the state of Maharashtra you need to first register on the Maharashtra government website and seek a ‘Registration certificate’. On registration and verification of your registration request by officials you will receive an ‘Enrolment certificate’.

Only on receipt of the Professional Tax Enrolment certificate, you can start deducting professional tax for your employees and make payments for the same.

2. Calculation of professional tax payable

Calculation of professional tax is based on the gross salary for that month. Let’s consider the example of an employee whose CTC per month is Rs. 50,000. The gross salary is calculated by deducting EPF, gratuity, leave deduction and loan repayments to the company from the CTC amount.The balance will give you the gross salary. Let’s consider for this example that after deductions the gross salary comes to Rs. 40,000. As a business owner, you will need to deductprofessional tax on Rs. 40,000. As per the professional tax rules in the state of Maharashtra, as a business owner you are required to deduct Rs.200 towards professional tax, except in the month of March, when the deduction will be Rs.300.

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3. Rules for deduction of professional tax from employees

While professional tax is calculated on pre-determined slabs, all paid employees working in the business are liable to pay professional tax. As the business owner, it is your responsibility to make the deduction of professional tax and make payment of the said amount to the government. The rules and slabs differ between states as the professional tax payments are based on income levels and minimum wage parameters of the respective state.

4. Professional tax registration in different states

States offer you the convenience of registering for professional tax both online as well as offline. Visit the state government tax website and select the respective link from there. Alternatively, you can also visit the nearest district sales tax office to complete the registration formalities. You will need to submit some business-related documents, so it is prudent to understand the documents required before visiting the government office.

5. How to make professional tax payments

Professional tax payments can either be made online or by visiting the local state tax office. Each state collects professional tax though net banking. Ensure you have the necessary banking facilities set up and then visit the government tax department website to complete the payment.

Professional tax is collected by the state to provide the infrastructure to enable you to run your business. It was introduced in 1949 and was last revised in 1988. The maximum tax that a state can collect annually as professional tax from each employee is Rs.2,500. To ensure your business keeps running smoothly, ensure that you abide by the rules and pay professional tax on behalf of your employees as required under state law.

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