Article 276

Article 276 of the Constitution of India defines the authority of State Legislatures and local bodies to impose taxes on professions, trades, callings, and employments. It represents an important component of India’s fiscal federalism, delineating the taxation powers of States vis-à-vis the Union government. The Article enables States to mobilise revenue from occupational activities while maintaining harmony with the Union’s power to levy income tax.

Constitutional Background and Objective

Before the Constitution came into effect in 1950, various provinces and princely states levied taxes on professions and trades. These taxes were a traditional source of revenue for local administrations. With the creation of a unified fiscal framework under the Constitution, Article 276 was incorporated to preserve these existing taxation powers and to provide constitutional recognition for States and local authorities to continue imposing such taxes.
The Article serves the dual purpose of ensuring local revenue generation and maintaining non-conflict with central taxation, thereby reinforcing the principle of cooperative federalism in financial matters.

Key Provisions of Article 276

1. Clause (1): Power to Levy Taxes on Professions, Trades, Callings, and Employments
   • The clause empowers State Legislatures to make laws for the imposition of taxes on professions, trades, callings, and employments.
   • Such taxes may be levied for the benefit of the State itself or of local authorities, such as municipalities or panchayats.
   • The validity of these taxes is not affected by any resemblance to the Union’s income tax, ensuring that both levels of government can operate independently in their respective taxation domains.
2. Clause (2): Limit on the Amount of Tax
   • The Constitution sets a maximum limit on the total amount of tax payable by any individual under this Article.
   • The maximum tax is prescribed as ₹2,500 per person per year.
   • However, if a higher rate of tax was already in force in any area before the commencement of the Constitution (26 January 1950), that rate may continue until modified by the State Legislature.
   • This safeguard was designed to ensure a smooth fiscal transition from pre-Constitution taxation systems to the new constitutional order.
3. Clause (3): Independence of Central and State Powers
   • This clause clarifies that the State’s power to tax professions, trades, callings, and employments does not limit or affect the Parliament’s power to impose income tax.
   • It establishes a clear distinction between income-based taxation (a Union subject) and occupation-based taxation (a State subject), ensuring that both governments can levy taxes without jurisdictional conflict.

Legislative and Administrative Application

The power granted under Article 276 has been implemented through various State laws such as the Professional Tax Acts enacted by State Legislatures. For example:

• The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975,
• The Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976, and similar statutes in other States.

These laws empower State authorities or local bodies to collect professional tax from individuals engaged in employment, trade, or business within their jurisdiction. The proceeds are typically used to support local infrastructure and welfare services.

Historical Context and Fiscal Relevance

When the Constitution was framed, the framers recognised the need for States to retain certain independent sources of revenue, particularly for municipal and local development. Taxes on professions and trades were historically one such dependable source.
Article 276 thus provided constitutional protection for this revenue stream, ensuring that it could continue despite the introduction of centralised income taxation. The Article also helped harmonise overlapping taxation powers between the Union and the States by limiting the amount of tax and clarifying jurisdictions.

Judicial Interpretation and Case Law

Judicial interpretation has played an important role in defining the contours of Article 276.

• K.K. Verma v. State of Maharashtra (1960) – The Supreme Court held that the State’s power to levy a professional tax under Article 276 is independent of the Union’s power to impose income tax. Even if the professional tax appears similar to income tax in form or incidence, its validity remains unaffected as long as it stays within the constitutional limit.
• The Court also clarified that the tax under Article 276 is levied on the privilege of carrying on a profession or trade, not on the income derived from it. Thus, it is conceptually distinct from income tax, which is based on actual earnings.

This interpretation reaffirmed the autonomy of State taxation powers, ensuring that the imposition of professional tax would not amount to encroachment upon Union jurisdiction.

Distinction Between Professional Tax and Income Tax

While both taxes may appear related, they differ fundamentally in purpose and scope:

This distinction ensures coexistence of both taxes within India’s federal financial structure.

Financial and Administrative Impact

Professional tax provides States and local governments with a stable, predictable source of revenue, especially useful for financing local administration and civic amenities. Although the monetary ceiling limits the total amount that can be collected per individual, its broad base ensures a steady inflow of funds.
Additionally, since the professional tax is often deducted at source by employers and remitted to the State exchequer, its administrative efficiency and compliance rates remain high compared to other local taxes.

Constitutional Significance in Fiscal Federalism

Article 276 is a prime example of the division of fiscal powers under the Seventh Schedule:

• It derives from Entry 60 of the State List, which authorises the States to levy taxes on professions, trades, callings, and employments.
• It coexists with Entry 82 of the Union List, which empowers Parliament to levy taxes on income other than agricultural income.

This division exemplifies the harmonious coexistence of Union and State taxation powers, a key feature of India’s quasi-federal system.