Anind Umrao*

Not at all like the name proposes, the term “Professional tax” does not denote its true meaning. It is a kind of tax which is not just levied on the professionals but a tax levied on wide range of callings, trade and businesses and is collected dependent on the pay of such calling, trade and businesses. Professional tax is imposed for the privilege of having  the  right  to practice the  profession or a tax  for privilege  of  belonging  to  a  profession  or  being  a  member  of  the  profession and is irrespective  of  the  fact  whether  a person  does  or  does  not  render  professional service  for  remuneration. Thus, it is a tax imposed for practicing any profession and a professional  has  to  pay  tax  to  take  out  the  licence  regardless of whether or not he actually carries on the profession.[1]  For  instance,  a  practicing  chartered  accountant,  or architect  may  not  render  any  service  but  he  will  be  liable  to  pay  professional  tax.[2]

Under Entry 60 of List II, the power to levy taxes on profession, trades, callings or employments is conferred on the State legislature. Under the Constitution of India, Article 276(2) empowers the State government authorities to levy Professional Tax, Article 276(2) states that, “the total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State byway of taxes on professions, trades, callings and employments shall not exceed two thousand and five hundred rupees”

The point to be considered is that, if the cap of Rs. 2500 is removed as mentioned under the Constitution,[3] would it be valid under the present regime of the constitution, as the removal of the cap would tend to blur the distinction between a tax on income and a tax on Profession since income will then cease to be a mere measure or yardstick of the tax and will become the very subject-matter of taxation. Restraint in this behalf is a prudent prescription for the State legislature to follow.[4] Any amendment by which the limit has been removed will undoubtedly leave a wide gap enabling the state government to fix an arbitrary rate.

Referring to the history of this Article, there have been instances with regards to the variation in the amount afore-mentioned but there has been no instance where this cap has, altogether, been removed. The removal of this cap is allowing the state government to levy exorbitant taxes under the garb of professional tax as provided in Article 276. It is the presence of this cap which differentiates the ‘Professional Tax’ with the ‘Income Tax’. Therefore, increasing the cap of Professional Tax is the exercise of colorable legislation, (i.e. an attempt to do things indirectly which cannot be done directly) since it is equivalent to encroaching upon the subject of the Union List.

Sarkaria Commission, while considering the question of raising the limit of professional tax observed in its report that there exist a substantial need for an upward revision in the limit of professional tax and the limits ought to be increased every once in a while. The Commission likewise noticed that the States were in a poor shape to garner a large amount of revenue from professional taxes due to the low limits set therein. In lieu of the persistent inflation, the commission further expressed that there is a need of periodic review of the limit.[5] However, the purpose for incorporating the monetary limit under Article 276 has been explained by the apex court by taking reference of the Section 142-A of the Government of India Act, 1935 by stating that non-inclusion of the monetary limit might bring professional tax in conflict with the tax on income enshrined under the Federal List.[6] The Court further stated that if no limit on this amount and no restriction on the State’s power would be placed, it would render it as a ‘second tax on income’ hence encroaching upon the Centre’s List.[7] Therefore, Article 276 deals with a mode of imposing a tax on professions which, if not limited, will render it indistinguishable from a tax on income.[8]

The Constituent assembly debates suggest that the only reason to incorporate ‘Professional tax’ in the Constitution book was to keep the funding of the municipalities continued and to not let their administration get affected.[9] Dr. Ambedkar expressed that there must be a limit over the power of the State in levying professional tax and this cannot be refuted otherwise the professional tax levied by the State Government would impinge upon Income tax, which is the subject matter of Central Government.[10]

As discussed above, it was the intention of the Constitution drafters that the monetary-cap would act as a demarcating line between the ‘income tax’ and ‘professional tax’ since it would be restricting the states from abusing their taxing power present under Article 276 and the earlier 142-A of the Government of India Act.[11] With the reference to the statement made by Dr Ambedkar and other members of the constituent assembly, they made it clear that they did not have any intention to remove this cap enshrined under article 276. Even though they had contemplation in their mind that the upcoming time will require the increment in the limit of the cap but the removal of the cap so as to allow the states to freely and exorbitantly levying the tax by the state government was not the intention of the constitution makers. [12]

It is a settled position that state has the power to levy tax on profession. However, the taxing power guaranteed to the State Government cannot not be used to impose arbitrary and unreasonable amount in form of a tax by way of an arbitrary condition precedent to the exercise of a fundamental right.[13] Freedoms guaranteed by our constitution cannot be subjected to advance restraint by the plenary taxing power of the State especially when the flat rate tax being levied in the present case is not a nominal amount rather a heavy tax intended for the augmentation of revenue under the guise of professional tax.[14] This tax is being imposed in exercise of its sovereign power however, sovereignty is no more an endless power rather it is responsibility. Therefore, taxation must be reasonable and lawful but not exorbitant.[15]


[1] Entry 60  List  II, Constitution of India,

[2] All India Federation of Tax Practitioners v. Union of India [2001] 116 Taxman 418.

[3] Article 276(2), Constitution of India.

[4].R. R. Engineering Co v. Zila Parishad, AIR. 1980 SC 1088.

[5] Report of Sarkaria Commission on Centre-State Relations, Chapter X, < >, accessed on 1st March, 2019.

[6] Kamta Parsad Aggarwal v The Executive Officer, Panchayat Samiti, Ballabgarh ILR (1968) 2 P&H 695, 700.

[7] Jadao Bahuji v. Municipal Committee, (1962) 1 SCR 633.

[8] Indian Const. art. 276; The Government of India Act, 1935, Sec. 142.

[9] Constituent Assembly of India – Volume IX, Tuesday, the 9th August 1949,

<> accessed on 1st March, 2019.

[10] Id.

[11] JadaoBahuji v. Municipal Committee, 1962 SCR (1) 633.

[12] Goodyear India Ltd. And Anr. vs The Executive Officer, AIR 1969 P H 379.

[13] Indian const. Art. 19(1)(g).

[14] Murdock v. Pennsylvania, 319 U.S. 105 (1943).

[15] Jindal Stainless Steel v. State of Haryana, (2017) 12 S.C.C. 1

* (Author Anind Umrao is BA LLB (Hons.), Class of 2021 of Dr. Ram Manohar Lohiya National Law University,Lucknow)

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January 2021