Employment Tax (Profession Tax) Deduction from Salary: Section 16(iii) of Income Tax

Section 16(iii) of Income Tax Act, 1961 provides for deduction of any sum paid by the assessee on account of Employment Tax/ Profession Tax, levied within the meaning of article 276(2) of the Constitution of India by or under any law, from salary income.

Self-employed people who fall under profession tax must pay it to the state. The Commercial Taxes Department of a State/ Union Territory collects profession tax based on predetermined tax slabs. The tax is based on an individual’s taxable income and can be paid annually or monthly. Self-employed taxpayers must obtain a Certificate of Enrollment from the concerned State authority.

In the case of salaried individuals and wage earners, the employer must deduct profession tax from the employee’s monthly salary (according to the applicable professional tax slab, subject to a maximum of Rs. 2,500 per person/ financial year) and deposit the same with the State Government. The employer needs a Certificate of Registration from the concerned State Authority to deposit the professional tax so deducted.

There are various States and Union Territories in India where the Government has notified/ levied the Profession/ Employment Tax, like Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tamil Nadu, Telangana, Tripura and West Bengal. However, in other States/ UTs the Profession/ Employment Tax is not applicable/ notified/ levied, like Andaman and Nicobar Islands, Arunachal Pradesh, Chandigarh, Dadra and Nagar Haveli, Daman & Diu, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Lakshadweep, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand.

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