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Profession tax through the ceiling
July, 29th 2006


The Centre has finally relented on the long-standing demand from States to enhance the ceiling for tax on professions from the current Rs 2,500 to Rs 7,500 per year.

One of the earliest taxes levied by the States is `tax on professions and callings' or profession tax. This tax varied depending on the profession one was in and was deductible from the income-tax one of the few deductions for the salaried class that has remained on the statute book without being touched upon from time to time.

It appears that all income earners, including the salaried and the self-employed, will soon have to fork out more of this tax. The Centre has finally relented on the long-standing demand of the States to enhance the ceiling for tax on professions from the current Rs 2,500 to Rs 7,500 per year. A hike in the ceiling is expected to substantially help these States tide over their revenue constraints. The present level of Rs 2,500 was fixed in 1988 through the 60th Amendment. This time, the Centre wants to carry out another amendment, through which it wants to retain the executive power to enhance the ceiling as and when required without having to go to Parliament for the same. States collect close to Rs 3,000 crore by way of professional tax.

But States feel that since the economy is booming and income-tax collections are also on the rise, this move would not have much impact. Earlier, when the proposal was mooted, the Centre had showed willingness to raise it to Rs 5,000 only. States want the additional revenues for meeting expenditure for creation of social infrastructure, including primary schools and hospitals. Even if the amount of profession tax is increased to Rs 5,000, the net outflow to the salaried would only be Rs 3,500 considering the tax break. However, the Centre, in conjunction with the States, could consider increasing the figure to, say, Rs 20,000. States could earn substantial revenues which could obviate the need for knocking at the doors of the Centre when short of funds.

Mohan R. Lavi
(The author is a Hyderabad-based chartered accountant.)

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