Professional Tax

Professional tax is a direct tax collected by state governments in India, including Karnataka. It applies to salaried employees and professionals—such as chartered accountants, lawyers, doctors, engineers, and others—as well as business owners and merchants. Each state sets its own rates and collection methods, and in Karnataka, the tax is deducted directly from salaries or fees for those engaged in various professions.

The Revised Professional Tax

In the 16th Karnataka Budget for 2025-26, the government announced no new taxes but made a significant change in the professional tax system. For salary and wage earners, the professional tax for February has been raised from ₹200 to ₹300, aligning the monthly deduction with the annual maximum limit of ₹2,500.

Previously, the professional tax deduction was ₹200 per month, amounting to ₹2,400 annually. With the amendment, the deduction for February is increased to ₹300. However, since the annual cap remains at ₹2,500, this adjustment effectively collects an extra ₹100 overall, rather than increasing the monthly deduction for all 12 months.

Based on the latest available data, Karnataka stands out as India’s top destination for white-collar professionals, with an active workforce of approximately 59 lakh individuals. With the recent Professional Tax revision leading to an extra deduction of ₹100 per salaried employee, a rough estimate suggests that the state could potentially see an additional revenue of around ₹59 crores.

Adapting to the Change

• Payroll and HR Updates: Employers must update their payroll and HR systems to reflect the increased deduction for February and communicate these changes clearly to employees.
• Accounting and Compliance: Businesses need to adjust their accounting processes to ensure the correct implementation of the increased deduction in February and timely remittance of the precise amount to the tax department.

The budget avoids new taxes and implements a limited professional tax increase, fostering a stable business environment and reinforcing confidence among businesses and workers. This targeted adjustment aligns tax policies with established limits while minimizing overall economic disruption.