Professional tax

Professional tax is a state levy on employment under Article 276, capped at Rs. 2,500 a year. Who pays it, state variation, and the old-regime income-tax deduction.

Updated 9 August 2026

Professional tax is a tax levied by state governments on professions, trades, callings and employments, under Article 276 of the Constitution of India, and capped at Rs. 2,500 per person per year. Despite the name it falls on ordinary salaried employees, not only on professionals, and for a central government employee it appears as a small monthly deduction on the pay slip in the states that levy it.

It is one of the most misunderstood lines on a pay slip, because the name suggests a tax on professionals and because it is a state tax that many people assume is central. This article explains what it is, the constitutional cap that keeps it small, why it applies in some states and not others, how it reaches a central government employee through the state of posting, and how it is treated for income tax. For the central income-tax computation, see income tax for government employees and the standard deduction.

What professional tax is, and where the power comes from

Professional tax is a direct tax levied by state governments, and in some states by local bodies, on the fact of being employed or carrying on a profession, trade or calling within the state. It has nothing to do with the Income-tax Act; it is a separate state levy, and it is charged on the employment itself, not on the amount of income in the way income tax is.

The power to levy it comes from Article 276 of the Constitution. Clause (1) says a state law taxing professions, trades, callings or employments is not invalid merely because it is, in effect, a tax on income. Clause (2) sets the hard limit: the total professional tax payable in respect of any one person to a state, or to any one local authority, shall not exceed Rs. 2,500 per year. Clause (3) makes clear that the state’s power to levy this tax does not limit Parliament’s power to tax income from the same professions and employments. That third clause is why an employee pays both professional tax to the state and income tax to the Centre on the same salary; there is no bar against the two applying together.

The Rs. 2,500 ceiling has a history worth knowing. The original cap in the Constitution was Rs. 250 a year. It was raised to Rs. 2,500 by the Constitution (Sixtieth Amendment) Act, 1988, which received the President’s assent on 20 December 1988. The cap has not been revised since, so in real terms it has shrunk steadily for nearly four decades, and for most salaried employees professional tax is now a token amount rather than a meaningful charge.

Why it applies in some states and not others

Because professional tax is a state subject, each state decides whether to levy it at all, and at what slabs. The slabs are almost always bands of monthly salary, and they differ from state to state, but the Rs. 2,500 annual ceiling of Article 276 binds every state alike.

As at the time of writing, the states and union territories that levy professional tax include Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Mizoram, Nagaland, Odisha, Punjab, Sikkim, Tamil Nadu, Telangana, Tripura, West Bengal and the union territory of Puducherry. Several large states do not levy it at all, among them Delhi, Uttar Pradesh, Haryana, Rajasthan, Himachal Pradesh and Uttarakhand.

These lists are not fixed. A state can introduce, drop or amend the levy by notification, as Punjab did when it brought in the levy through the Punjab State Development Tax Act, 2018. The reliable course is to treat the position as variable and to confirm the current status with the commercial tax department of the specific state rather than relying on any list as permanent.

How it reaches a central government employee

A central government employee is not exempt by virtue of being a central employee. Liability turns on the state in which the employee is posted and works, because each state’s professional-tax Act applies to persons employed within that state. An employee posted in a levying state such as Maharashtra, Karnataka, West Bengal or Tamil Nadu is generally liable, subject to that state’s own exemptions; an employee posted in Delhi, Uttar Pradesh or another non-levying state pays nothing. On transfer between states, the position changes with the posting.

The employee rarely deals with the state tax department directly. In a government establishment the Drawing and Disbursing Officer deducts the professional tax every month from the salary of the employees in that office and accounts for it under the relevant state Act, in the same way the office deducts income tax at source. The deduction shows in the deductions column of the pay slip, usually labelled “Professional Tax” or “PT”, and for most employees it is a small fixed figure, commonly Rs. 200 a month, that reduces the take-home salary.

State Acts carry their own exemptions, which vary. Under the Maharashtra Act, for example, senior citizens, persons with a disability of 40% or more, members of the armed forces, and, since 1 April 2023, women drawing a monthly salary up to Rs. 25,000, are exempt. These are examples specific to one state, not universal rules.

A worked example of the slabs

One state shown in full makes the Rs. 2,500 ceiling visible in the arithmetic. Under the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975, for the financial year 2025-26, an employee drawing a monthly salary above Rs. 10,000 pays Rs. 200 a month, and Rs. 300 in one month of the year, so the annual total is Rs. 200 for eleven months plus Rs. 300, which is exactly Rs. 2,500. That single higher month is a balancing device that brings the yearly figure to the constitutional ceiling.

Karnataka reached the same ceiling by a different route. The Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976, as amended by Karnataka Act No. 33 of 2025 notified in April 2025, raised the exemption threshold so that salaries up to Rs. 25,000 a month pay nothing, and set the tax above that at Rs. 200 a month with a higher figure in one month, again totalling Rs. 2,500 a year. Every levying state settles on its own bands, but none can exceed the Rs. 2,500 annual cap.

Income-tax treatment: Section 16(iii), old regime only

Professional tax actually paid during the year is deductible in computing income under the head “Salaries”, under Section 16(iii) of the Income-tax Act, 1961. There is no separate monetary cap in Section 16(iii) beyond the amount actually paid, which the Article 276 ceiling already limits to Rs. 2,500 a year. If the office pays the professional tax on the employee’s behalf, it is first added to salary as a perquisite and then the same amount is allowed as the deduction.

The load-bearing point is the regime. For the tax year 2026-27 the deduction sits at serial number 1 of the Table in Section 19(1) of the Income-tax Act, 2025, which renumbers Section 16(iii) of the repealed 1961 Act and allows any sum paid on account of a tax on employment levied under article 276(2) of the Constitution. Section 202(2)(a)(iv) then requires total income under the default new regime to be computed without the deduction at serial number 1, so it is available in the old regime only. The standard deduction at serial number 2 is the one salary deduction that survives in both. The third Section 16 deduction of the old Act, the entertainment allowance under Section 16(ii), has no counterpart in the 2025 Act at all and is unavailable in either regime from 1 April 2026. So an employee on the new regime still pays professional tax to the state, because that liability is entirely separate from the income-tax regime, but gets no income-tax deduction for it. On the old regime the same employee both pays it and deducts it. The old versus new regime choice affects only the deductibility, not the state liability.

Common errors

Confusing professional tax with income tax on professional income. Professional tax is a state levy under Article 276; income tax is a central levy under the Income-tax Act. Article 276(3) confirms both apply.
Thinking only professionals pay it. The name misleads; it covers employments, so an ordinary salaried government employee is squarely within it.
Expecting more than Rs. 2,500. The cap is constitutional and applies per person per state per year, whatever the salary.
Expecting a deduction under the new regime. The Section 16(iii) deduction is old-regime only.
Assuming it applies everywhere. Several large states, including Delhi, Uttar Pradesh, Haryana and Rajasthan, do not levy it.
Assuming a central employer removes the liability. Liability follows the state of posting, not the employer.

Frequently Asked Questions (FAQs)

What is professional tax?

Professional tax is a tax levied by state governments on professions, trades, callings and employments, under Article 276 of the Constitution. Despite the name it applies to ordinary salaried employees, not only professionals, and it is separate from central income tax.

What is the maximum professional tax?

Article 276(2) caps the total professional tax payable to a state at Rs. 2,500 per person per year, no matter how high the salary. The ceiling was raised from Rs. 250 to Rs. 2,500 by the 60th Constitutional Amendment in 1988 and has not changed since.

Do central government employees pay professional tax?

Yes, if posted in a state that levies it. Being a central employee gives no exemption. In a levying state the office’s Drawing and Disbursing Officer deducts it from salary; in a state that does not levy it, such as Delhi or Uttar Pradesh, nothing is deducted.

Which states do not levy professional tax?

Several large states do not levy it, including Delhi, Uttar Pradesh, Haryana, Rajasthan, Himachal Pradesh and Uttarakhand. The position can change by notification, so confirm the current status with the relevant state’s commercial tax department.

Is professional tax deductible under the new tax regime?

No. For the tax year 2026-27 the deduction sits at serial number 1 of the Table in Section 19(1) of the Income-tax Act, 2025, renumbering Section 16(iii) of the repealed 1961 Act, and Section 202(2)(a)(iv) requires total income under the default new regime to be computed without it. The standard deduction at serial number 2 is the only salary deduction that survives in both regimes, so an employee on the new regime pays professional tax and gets no deduction for it.

Is professional tax the same as income tax?

No. Professional tax is a state levy on employment under Article 276; income tax is a central levy on income under the Income-tax Act. An employee pays both on the same salary, and Article 276(3) confirms the state levy does not bar the central income tax.

External references

References

Constitution of India, Article 276 (taxes on professions, trades, callings and employments), clauses (1) to (3).
The Constitution (Sixtieth Amendment) Act, 1988, assent 20 December 1988, raising the Article 276(2) ceiling to Rs. 2,500 per year.
Income-tax Act, 1961, Section 16(iii) (deduction of professional tax from salary), and Section 115BAC (the new regime, restricting Section 16 to the standard deduction).
Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 (with the 2023 amendment exempting women up to Rs. 25,000 a month).
Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976, as amended by Karnataka Act No. 33 of 2025 (notified April 2025).
Punjab State Development Tax Act, 2018 (cited for the Drawing and Disbursing Officer deduction mechanism in government establishments).