Different Tax Implications


November 27, 2015

Different Tax Implications

To acquire a specialized consulting service in today’s competitive environment, it is not necessary to appoint a person who has specialized knowledge, in fact, he may be hired as an advisor or consultant for the specified fee and duration. Either to be tax consultant or a tax employee, the overall compensation remains the same, but it is necessary to carefully consider other aspects to avoid complications and problems at the later stages of the tax assessment course. Tax withholding rate is not the only difference between an employee and a consultant, but there are other factors which matter too. Here https://smartcpa.net/ is guiding you about those factors:

Nature Of Income

The salary income is the one which is received in case of employment and the one which is received from advisory or consultancy is categorized as salary income. While calculating and evaluating the taxable income, an employee cannot claim the expenditure deduction earned by him for the employment purposes. Tax exemption on certain other elements of salary can be claimed by the salaried employee, such as leave travel allowance or house rent allowance. However, all the business expenses which are eligible and incurred in offering the consultancy or advisory services can be deducted from for the tax purposes from consultancy income, even the depreciation value of business assets is also deductible.

Books Of Accounts

In specified professions like engineers, doctors, architects, lawyers and other professions, where the gross receipt and income exceed a certain amount, it is mandatory to maintain the account books by the consultant. If the net receipts exceed Rs.15 lakh from consultancy, the account books have to be audited by the charted accountant. These special maintenances of account books and accounts auditing are not applied to the salaried employees.

Setting Of Loss

It is permissible for the consultants to set off the losses of some other profession or business from the consultancy income and can carry forward the unabsorbed losses for further eight succeeding years. However, only the house property loss can be set off by an employee from his/her income.

Advance Tax

In employment cases, every month employers withheld the tax applicable to them at the average tax rate. If the employee has no income except the salary, then advance pay tax is not required by him. But in consultancy cases, if the consultancy fee is more than the specified amount of tax laws then the tax is deducted by the payer at 10% flat rate from consultancy fee at payment time. Since from consultancy fee, the taxes are withheld at fewer rates, the total take-home pay can be higher. If the tax withheld is not enough to cover the whole tax then consultant may be needed to pay the balance or advance tax in 3 installments.

Service Tax

Other than the implications of the income-tax, certain other services are also included in the service tax matters under the separate regulation. If the notified services cover the provided services, for example, consulting engineers, legal consultancy, business and management consultancy and so on, then it is required to obtain the registration of service tax and fulfill with the regulations of service tax.

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