The Definition of "Professional Tax"

Tax policies vary widely around the world, and are based on government revenue needs, social expectations and constitutional or legal limits. While taxes vary widely in terms of amount and source, they all provide money for the government to function. The professional tax is a tax unique to the nation of India, with no clear comparable tax in the United States.

  1. Meaning

    • Workers living in states that impose the professional tax must submit a payment each half-year for the right to practice a profession or trade. It applies equally to employees who work for the national or state government, and those employed by private corporations. The professional tax uses a six-month accounting system, which divides the year into two periods, beginning on April 1 and October 1.

    Administration

    • Several state governments in India administer a professional tax. The states that impose a professional tax include Andhra Pradesh, Maharashtra, Tamilnadu, Karnataka, Gujarat, Madhya Pradesh and West Bengal. Professional tax exists only at the state level, which means that residents of states that don't impose it are free from any liability. Individual employers collect professional taxes from workers and submit the funds to the state government.

    Amounts

    • The amount of professional tax varies from one state to another, and is based on an individual worker's six-month income. The amount is generally modest for low-wage earners, and increases for higher earners, making it a progressive tax. For example, in West Bengal, workers who earn less than 1,500 rupees in six months pay no professional tax, while those earning between 1,501 and 2,001 rupees pay 18 rupees every six months as professional tax. West Bengal workers earning more than 40,001 rupees in six months make up the highest tax bracket in the state and pay 200 rupees in professional tax. The state of New Delhi uses a percentage system, with brackets ranging up to 30 percent for workers who earn more than 250,000 rupees in six months.

    Purpose

    • Indian states use professional tax as a major source of revenue, much as the federal and state governments in the United States rely on income tax from wage earners. Indian state tax codes allow workers to take income tax deductions based on the amount of professional tax they paid during the previous year, further tying professional tax to income tax. State governments use professional tax revenue to fund a variety of state programs.

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