Payroll and HR glossary
Professional tax
Professional tax is a state tax on employment, trades and professions, which employers deduct from salaries in the states that levy it. The Constitution caps it at ₹2,500 a year per person, and each state sets its own slabs, due dates and returns.
Why it matters to your business
Professional tax is small per employee, but the duty to deduct and deposit it is yours. Each state has its own law, slabs, registration and due dates, so a business with staff in more than one state follows more than one set of rules. Missing it attracts interest and penalties from the state, and employees notice when their payslip is wrong.
How it works
As of September 2026:
- Who deducts: the employer, from the salary of each employee working in a state that levies the tax, according to that state’s monthly salary slabs.
- Registration: in Maharashtra, for example, an employer holds a registration certificate for deducting tax from employees and a separate enrolment certificate for its own tax.
- Rates: set by each state. In Maharashtra and Karnataka, an employee in the highest slab pays ₹200 a month and ₹300 in February, which adds up to ₹2,500. Some states exempt lower salaries and, in Maharashtra, women earning up to ₹25,000 a month.
- Deposit and returns: monthly, quarterly or yearly depending on the state and the amount.
- Payslip and Form 16: the deduction appears on the payslip and in the salary certificate.
An example
A company in Bengaluru pays an employee ₹40,000 a month. It deducts ₹200 of professional tax each month from April to January and in March, and ₹300 in February, a total of ₹2,500 for the year, and deposits it with the Karnataka commercial taxes department.
Common mistakes
- Applying the head office state’s slabs to employees working in a branch in another state.
- Forgetting the business’s own enrolment tax, which is separate from employees’ deductions.
- Deducting the tax but depositing it late, which attracts interest even though the money was held.
Questions about Professional tax
Which states levy professional tax?
Several states, including Maharashtra, Karnataka, West Bengal, Tamil Nadu, Gujarat, Andhra Pradesh, Telangana, Kerala, Odisha and Madhya Pradesh. Some states and union territories, such as Delhi, Haryana, Uttar Pradesh and Rajasthan, do not levy it.
What is the maximum professional tax?
₹2,500 a year for one person, the limit set by Article 276 of the Constitution. States that reach this limit usually deduct ₹200 a month and ₹300 in one month of the year, often February.
Is professional tax deductible for income tax?
Under the old tax regime, professional tax paid is deducted from salary income. The new tax regime, the default, does not allow the deduction.
Does the employer also pay professional tax?
Yes, in most states that levy it. The business registers once to deduct tax from employees' salaries and deposit it, and separately enrols to pay its own yearly tax as a business or professional.
Updated .