Two Taxes on Your Salary? Difference Between Professional Tax and Income Tax

Ever looked at your salary slip and wondered why both income tax and professional tax is being deducted from your salary? You’re not alone. 

The first thing to know is that they are not the same thing. Understanding the difference between professional tax and income tax equips you with the knowledge to read your payslip correctly and know exactly where your money is going. Let’s get started.

What Is Professional Tax?

This is charged by the state government and is a state-level tax. It applies to you if you are a salaried person or a professional like doctor, lawyer, freelancer, and consultant.

Some aspects you need to know about professional tax is:

• Amount is small and fixed by the state
• Maximum professional tax is Rs. 2,500 a year
• Deducted monthly by the employer for salaried employees

What Is Income Tax?

This is charged by the central government based on the total income you earn in a financial year. It applies to salary income, business or professional income, interest, rent, and other income sources.

The amount of your income tax depends on your total income, applicable tax slabs, and deductions and exemptions you are eligible for.

Difference Between Professional Tax and Income Tax

Here’s the basic difference between professional tax and income tax that will you give you more clarity on your salary structure:

Why Both Taxes Exist

Both taxes serve different purposes and work on different government levels. Professional tax helps in raising state revenues while income tax raises funds for national expenditure like defence, infrastructure and welfare.

Can Professional Tax Reduce Income Tax?

It’s helpful to note that professional tax can reduce income tax. This is because the amount you pay as professional tax is eligible for deduction from your income tax. So, even though it’s still a tax, it can help reduce your taxable income.

Takeaways

Knowing the difference between professional tax and income tax can help you understand that both are separate taxes with their own respective rules, authorities, and purposes. This can aid in removing confusion and filing your taxes correctly.