Professional tax is levied by state governments or local bodies on professions, trades, callings and employment. The power to levy the tax flows from Article 276 of the Constitution that also caps the tax amount. The Centre will amend Article 276 to raise the limit. Although Delhi does not impose the tax, states such as Karnataka, Maharashtra, West Bengal, Andhra Pradesh, Tamil Nadu and Gujarat do so.

The limit was fixed in 1998 at Rs 2,500 per annum. Increase in tax has been a longpending demand of the states, pointing at rise in income levels in the past few years.

The Centre's reluctance to state governments' demand for a hike in the limit is borne out of the fact that taxpayers who pay professional tax are eligible for a deduction under the Income-Tax Act. So, while the state governments' revenues grow, the Centre loses tax on this count.

However, with the direct tax collections witnessing stupendous growth, state governments had intensified pressure on the Centre. Their argument is that the tax does not have a substantial impact on Centre's total kitty as the collection under this head by states was only Rs 3,500 crore.