Professional Tax in India Explained: Who Pays It, Which States Levy It, and Does It Affect Your CTC?
In India, taxes are an unavoidable part of earning and spending money. While most people are familiar with income tax and GST, there is another tax that quietly appears on many salary slips every month — professional tax. Because the amount is small and the rules differ from state to state, it often goes unnoticed or misunderstood.
So, what exactly is professional tax? Who needs to pay it? Which states levy it? And most importantly, does it have any impact on your CTC (Cost to Company)? This article answers all these questions.
What Is Professional Tax?
Professional tax is a direct tax levied by state governments on individuals who earn income through employment, profession, trade, or business.
Despite its name, professional tax is not limited to professionals like doctors or lawyers. It applies to a wide range of earners, including:
Salaried employees
Self-employed individuals
Business owners
Freelancers and consultants
For salaried employees, professional tax is deducted by the employer from the salary and deposited with the state government. Self-employed individuals, on the other hand, must pay it directly to the state authorities.
Maximum Limit of Professional Tax
According to Article 276 of the Indian Constitution, the total professional tax payable by any individual cannot exceed ₹2,500 per year. This cap applies regardless of income level, making professional tax relatively small compared to income tax.
Is Professional Tax Different From Income Tax?
Yes, professional tax and income tax are completely different.
Income tax is levied by the Central Government and has no upper limit.
Professional tax is levied by state governments and is capped at ₹2,500 annually.
Another key difference is that professional tax is usually deducted monthly, while income tax is calculated and settled on a yearly basis.
The good news is that professional tax is allowed as a deduction under the Income Tax Act, 1961. This means the amount paid reduces your taxable income slightly.
How Is Professional Tax Calculated?
There is no uniform structure for professional tax across India. Each state decides:
Income slabs
Monthly or annual deduction amount
Exemption limits
In most states, salaried employees see professional tax deducted every month from their gross salary. In some cases, one month’s deduction may be higher to adjust the annual limit of ₹2,500.
For self-employed individuals, professional tax is often paid annually or quarterly, depending on state rules.
Which States Levy Professional Tax?
Not all states and Union Territories in India levy professional tax.
States and UTs Where Professional Tax Is Applicable
Professional tax is levied in:
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Gujarat
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Odisha
Puducherry
Tamil Nadu
Tripura
West Bengal
Jharkhand
If you live and work in any of these regions, professional tax may be deducted from your income.
States and UTs Where Professional Tax Is Not Levied
Professional tax is not charged in:
Arunachal Pradesh
Delhi
Goa
Haryana
Himachal Pradesh
Jammu & Kashmir
Nagaland
Punjab
Rajasthan
Sikkim
Uttar Pradesh
Uttarakhand
Andaman and Nicobar Islands
Chandigarh
Daman and Diu
Dadra and Nagar Haveli
Lakshadweep
Employees and professionals working in these areas do not have to pay professional tax.
Who Is Required to Pay Professional Tax?
Professional tax applies to individuals earning income in states where it is levied, subject to minimum income limits.
1. Salaried Employees
Both government and private-sector employees must pay professional tax if their salary exceeds the exemption threshold set by the state.
2. Professionals
This includes doctors, lawyers, architects, chartered accountants, engineers, and consultants. Many professionals must register and pay professional tax on their own.
3. Self-Employed Individuals and Business Owners
Shop owners, traders, freelancers, and entrepreneurs may also be required to pay professional tax, even if they do not employ anyone.
Who Is Exempt From Professional Tax?
Exemptions vary by state, but commonly include:
Individuals earning below the minimum income limit
Senior citizens (in some states)
Persons with disabilities
Certain categories of women or specific professions, depending on state rules
It is always advisable to check the local professional tax regulations applicable to your state.
Is Professional Tax Included in CTC?
This is one of the most common doubts among employees.
The answer is no — professional tax is not part of your CTC.
Here’s why:
CTC represents the total cost incurred by the employer on an employee.
Professional tax is a statutory deduction, not a benefit paid by the employer.
It is deducted from your gross salary, reducing your take-home salary, but it does not change your CTC.
So, if you see professional tax mentioned on your payslip, it simply means a mandatory deduction has been made.
How Does Professional Tax Affect Take-Home Salary?
The impact on take-home salary is minimal. Since the annual limit is ₹2,500, the monthly deduction usually ranges between ₹100 and ₹200.
Additionally, because professional tax is deductible under income tax, it slightly helps in reducing your overall tax liability.
Why Is Professional Tax Important?
Although the amount is small, professional tax is important because:
It is legally mandatory in applicable states
Non-payment can attract penalties and interest
Employers are responsible for correct deduction and timely payment
Self-employed individuals must comply to avoid legal issues
Understanding professional tax also helps you read your salary slip correctly and plan your finances better.
Final Words
Professional tax may seem insignificant compared to income tax, but it is an essential part of India’s state taxation system. Knowing who pays it, where it applies, and how it affects your salary ensures compliance and avoids unnecessary confusion.
Whether you are a salaried employee or a self-employed professional, a basic understanding of professional tax will help you stay financially aware and legally compliant — one small deduction at a time.
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