Income Tax News: Every individual in certain states is required to pay a professional tax if their income exceeds a specific threshold. Although many people can claim an income tax reduction from their gross total income and receive a refund for professional tax previously paid, others cannot.
Mandatory Professional Tax for Salaried Individuals
“Every salaried and self-employed individual who earns an income is liable to pay professional tax in the specified states where they earned that income,” says Dr Suresh Surana, founder, RSM India, a business consulting group.
When is professional tax not refundable if it is paid?
According to chartered accountant, Sandeep Agrawal, co-founder, Teamlease Regtec, “An individual whose total income is below the basic exemption limit can claim deduction from his/her gross total income for professional tax paid, but it will not result in refund of professional tax actually paid.”
The reason for not receiving a refund despite claiming an income tax deduction for already paid professional taxes is that the income-tax Act only allows it as a deduction from gross total income. As a result, if you have not paid income tax, this deduction will not result in a refund. In contrast, tax deducted at source (TDS) is returned after filing an income tax return (ITR) if an individual’s net tax burden is less than or equal to the TDS amount.
Evolution of Tax Regimes
Under the previous tax regime, the basic exemption limit was Rs 2.5 lakh. It is Rs 3 lakh under the new tax scheme. This means that if an individual’s annual gross income is less than the basic exemption amount, no income tax is due. Take note of the keyword ‘no income tax’. Professional tax would still have to be paid if one earned more than the prescribed amount in certain states, even if one earned less than the basic exemption level.
When will professional tax be returned if it is paid?
Only taxpayers with income above the basic exemption limit and who have paid income tax can claim professional tax as a deduction and receive a refund. “When individual’s income exceeds the basic exemption limit, the individual can claim professional tax deduction under section 16(iii) of the Income-tax Act, 1961. The actual amount of professional tax paid during the financial year can be deducted from the gross total income before calculating the income tax liability. The Individual should disclose professional tax deduction under para 5 of ‘Schedule Salary’ of the income tax return (ITR) form,” says Akhil Chandna, Partner, Grant Thornton Bharat, a tax and business consulting group.
How may consultants obtain a refund for professional taxes paid?
The approach is different if a consultant wants to claim professional tax paid as an income tax deduction from their gross total income. “In case of self-employment, the individuals may need to obtain a Professional Tax Enrolment Certificate (PTRC) to make required professional tax payments on their own. The difference between salaried and self-employed is that for salaried the employer obtains a PTRC and deducts professional tax from the gross salary and then deposits it with the government,” says Suran. Once the PTRC is received, the consultant must deposit the professional tax and claim the amount paid as a deduction from gross total income.
Disclaimer: This information is intended for general knowledge only. Any financial decisions should be made in consultation with a qualified professional. DNP News Network Private Limited is not liable for any financial losses incurred based on the information provided here.
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