Professional Tax: Deduction from Salary | Salary Income


Professional Tax: Deduction from Salary | Salary Income


Deduction from salary: Professional Tax and Entertainment tax
1)      Entertainment Allowance – Section 16 (ii)
2)      Professional Tax  – Section 16 (iii)



Professional Tax on Employment:


Professional Tax also renowned as Tax on Employment is paid to the state government. It is deducted by the employer from the salary payable to the employee and such tax is paid to the state government on behalf of the employee. Professional Tax is levied by the state government under the right given in article 276 of the Constitution. As it is a part of salary and paid to the State Government, it is allowed as a deduction while calculating the taxable amount under the head “Income from Salaries”. Thus Professional tax on employment is allowed as a deduction under section 16 (iii) of the Income Tax Act, in the following manner:
Section 16 (iii)
16 The income chargeable under the head “Salaries” shall be computed after making the following deductions;
(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law.
Certain Points to be kept in mind:
          Professional tax is allowed as a deduction to all the employees.
          It is allowed as a deduction when actually paid.
          When the professional tax deduction is to be availed, taxable salary is to be calculated in the following manner:

Total Salary (including all the perquisites)                                                                                        XXX
Less: Professional Tax paid to the state government on behalf of the employee          (XXX) 

Other Deductions                                                                                                                                       (XXX)
Taxable Salary                                                                                                                                               XXX
          In case where the professional tax is reimbursed or paid by the employer, taxable salary is to be calculated in the following manner:

Total Salary (including all the perquisites Plus professional tax)                                                 XXX

Less:     Professional Tax paid to the state government on behalf of the employee           (XXX)

Other Deductions                                                   &nb

sp;                                                                                        (XXX)
Taxable Salary                                                                                                                                                    XXX

In Gujarat the Professional Tax is levied on salaries / wages. The slab rate to calculate such rate as stated by Gujarat Panchayats, Municipalities, Municipal Corporations and State Tax on Professions, Traders Callings and Employment Act 1976; as governing authorities is as under:
Monthly Salary Slab
Amount Payable as Professional Tax
< Rs. 6000 i.e. upto Rs. 5999
Nil
Rs. 6000 to Rs. 8999
Rs. 80 / Month

Rs. 9000 to Rs. 11999
Rs. 150 / Month
Rs. 12000 and more
Rs. 200 / Month
 
Let us understand the above concept with the help of an example:
 
Example:
Details of Mr. X for the Financial Year 2012-13:
Salary                                                                                                    Rs. 1,80,000 p.a.
Professional Tax paid                                                                          Rs. 2,400
Calculate Taxable Salary assuming there is no other adjustments.
Solution:
                Salary                                                                    Rs. 1,80,000
Less:      Deduction u/s 16 (iii)                                        ( Rs. 2,400)
                – Professional Tax Paid                                                      .
                &nbs

p;               Taxable Salary                                   Rs. 1,77,600

==========================================================
Extension of Example:

Rs. 1500 reimbursed by the employer for Professional Tax.
Now Calculate Taxable Salary assuming there is no other adjustments.
Solution:
                Salary (Note 1)                                                  Rs. 1,81,500
Less:      Deduction u/s 16 (iii)                                        ( Rs. 2,400)
                – Professional Tax Paid                                                      .
                                Taxable Salary                                   Rs. 1,79,100
Note 1:
When the professional Tax is reimbursed by the employer in whole or in part such amount is added the salary before availing deduction under section 16 (iii). Therefore:
Salary   = Actual Salary + Reimbursement of Professional Tax by Employer
= Rs. 1,80,000 + Rs. 1,500
= Rs. 1,81,500

Leave a Reply

Your email address will not be published. Required fields are marked *

Tax Finance info © 2016 Frontier Theme