Do I Need To Register For Sales Tax If I'm A Consultant
Introduction
Due to the novel coronavirus pandemic, many companies are grappling with decrease in business concern and unavoidable layoffs. This does not mean that the company suddenly has no work for their employees, instead they are looking out for more than economically viable options to do the aforementioned piece of work. This is where the employees who are skillful and confident at what they do are opting to work as Independent consultants or Freelancers. Companies in diverse sectors such as IT and IT-enabled services, Fast-Moving Consumer Goods (FMCG), Health intendance, Education and Professional services are now looking at utilising freelance talent and Independent consultants more than than ever before. Virtual piece of work-strength is the need of the hour. Companies such every bit Infosys, Tech Mahindra, Accenture, EY, Deloitte, and Simplilearn admitted that roles that require niche skills and are in need for a curt duration, will transition to gig jobs (i.due east. temporary and flexible jobs performed by Contained consultants, Independent contractors and freelancers instead of full-time employees) much faster. "Companies are now much more than used to having a virtual workforce, and traditional boundaries between full-time employment and freelancers volition blur," said Richard Lobo, Executive Vice President and Hour Caput at Infosys.
And then, the people who have fabricated this transition or intend to make this transition demand to sympathise the tax implications that are applicable to consultants or freelancers.
In this article, I will try to explain the various tax implications for freelancers or consultants.
Why practice freelancers or consultants have to pay taxation?
As per the Income Tax Human activity, 1961 Charging department 28(i) ' the profits and gains of any business or profession which was carried on past the assessee at any time during the previous twelvemonth is taxable nether the head Profits and Gains from Business organization or Profession.' Income revenue enhancement laws in Republic of india state that any income generated by an individual through implementation of their intellectual or manual skills is considered an income from a business organisation or profession.
Every Individual, Hindu Undivided Family unit (HUF), Bogus Judicial Person (AJP), Association of Persons (AOP), Torso of Individuals (BOI), Companies both Domestic and Foreign, Partnership Firms, Limited Liability Partnerships and Local Regime have to pay tax if their income in a item year exceeds sure bones limits which will exist explained in the later part of the article. Freelancers and consultants autumn under one of the above categories equally per the size and scale of its operations and thus liable to pay tax.
Computation of taxable income
Freelancer or a Consultant can acquire income from more than 1 employer who is willing to rent them for their services and expertise on a particular subject.
- Step 1: Calculate the Gross total income* in a particular financial year (i.e. from 1 st April to 31 st March)
*Gross total income is the total revenue earned by the freelancer or consultant from various employers through all the assignments he/she was involved with.
- Stride ii: Reduce the expenses related to profession from the Gross total Income.
- Step 3: Deduct depreciation expenses Due east.1000. depreciation on computers and laptops, cars, article of furniture etc. Withal all these things must be used in the course or furtherance of completion of assignments or projects by the consultants or freelancers.
- The resultant corporeality is the Taxable Income i.e. the corporeality on which tax is chargeable past the Tax Authorization.
Allow's understand this Computation of taxable income with an example:
Mr. A is a Chartered Accountant providing a range of services relating to taxation and bookkeeping. In the financial twelvemonth 2018-19 he earns Rs.ten lakhs from diverse sources
The expenses were as follows:
Staff expenses (related to the services provided) – Rs.ten,000 per month
Depreciation on computers and laptops – Rs. 15,000 per annum
Hire of office premises – Rs, xv,000 per month
Ciphering of taxable Income:
| Particulars | Corporeality | Amount2 |
| Gross total income (given) | 10,00,000 | |
| (less): Expenses related to profession: | ||
| Staff expenses (10,000×12) | -ane,20,000 | |
| Rent of office premises | -1,80,000 | |
| (less): Depreciation: | ||
| Depreciation on computers and laptops | -15,000 | |
| Total of all expenses | -three,xv,000 | |
| Gross Taxable Income | 6,85,000 |
Continuing with the to a higher place instance Mr.A can choose one of the two tax regimes in club to make up one's mind the amount of tax which must be paid.
| Option 1
| Choice 2
|
Option i is the traditional taxation slab which is coupled with various exemptions and deductions to reduce the tax liability of the taxpayer. However, option two is the new tax slab where the facilities of such exemptions and deductions are non claimable as the tax rates take been lowered.
"Under the new tax regime, the individuals tin opt to pay revenue enhancement at the reduced rates without claiming the various tax exemptions and deductions. The individuals will accept to work out their tax liability under the onetime and new tax regime before deciding which ane is more beneficial. While the new regime seems simple on account of no exemptions, there would be individuals who take already made delivery in recurring tax savings instruments who may however desire to avail exemptions and become taxed under the onetime regime," said Shalini Jain, Taxation Partner, EY Republic of india.
All deductions nether Chapter VIA (like department 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, fourscore-IBA, etc) will not exist claimable past those opting for the new tax authorities. There are virtually lxx exemptions and deductions which cannot exist claimed under the new regime.
Compulsory maintenance of Books of accounts
As per section 44AA of Income Tax Human activity, 1961 maintenance of Books of accounts was compulsory in following 2 cases:
Specified/Notified profession
Equally per the Income Tax Act Specified Professions are as follows:
- Medical
- Legal
- Accountancy
- Movie creative person
- Engineering science
- Technical consultancy
- Architectural
- Interior decorator
- Company secretarial assistant
- Any other profession which may be notified by the CBDT
In case of specified profession,
If Gross receipts are more than Rs. one,50,000 in all 3 years immediately preceding the relevant previous year
or
The Gross receipts are probable to exceed Rs. 150,000 in case of newly set-up profession
Then,
The assessee is required to maintain Books of accounts as per Rule 6F.
Rule 6F – Following Books must be maintained:
- Cash Book
- Periodical
- Ledgers
- Copies of bills exceeding Rs. 25
- Original bills for expenditure exceeding Rs. 50
- In example of Medical practitioners, additional books i.eastward. Daily case register with details of patients, services rendered, fees received and date of receipt and details of stock of drugs, medicines, and other consumables used.
Other Assessee
In case of other assesses,
If Profits and Gains of Business or profession (PGBP) is more Rs. 1,xx,000
Or
Full sales or Gross receipts are more than Rs. 10,00,000 in any of the 3 years immediately preceding the relevant previous yr
Then,
The assessee is required to maintain books of accounts or documents from which the Assessing Officer (AO) is able to complete the assessment.
However, in case of Individual and HUF, the limit will exist Rs. 250,000 for total income for business or profession and Rs. 25,00,000 for Turnover or Gross Receipts.
Tax Audit
As per section 44AB of the Income Tax Act, 1961
Tax Audit is compulsory in following cases:
- In case of business, if turnover is greater than Rs. 1 crore during the previous year
- In case of profession, if Gross receipts are more than than Rs. 50 lakhs during the previous year
- In cases where assessee is covered by Presumptive Tax
Section 44AD: Profits and Gains of Business on Presumptive Basis
Where the assessee has claimed income less than 8% or 6% as per the provisions of the section and the total income is more than than the bones exemption.
Section 44ADA: Profits and Gains of Professionals on Presumptive Basis
Where the assessee has claimed income less than 50% as per the provisions of the department and the total income is more than the basic exemption.
Presumptive tax
Section 44ADA of Income Taxation Deed, 1961: Profits and Gains of Professionals on Presumptive Basis
- This section is applicable if Gross Receipts of resident assessee (who is engaged in profession as per department 44AA) is upto Rs. l lakhs.
- As per the provisions of this section PGBP income will be 50% of Gross Receipts. Income tax will be calculated on the fifty% income on the ground of slab rates.
- Deduction of business expenses shall not be allowed as it is assumed that all the deductions are included as only l% of the total gross receipts are taken for tax purposes.
- There is no requirement of maintaining Books of Accounts as per section 44AA and get information technology audited as per section 44AB of the assessee declares income on Presumptive basis.
- Nonetheless, if the assessee declares income lower than fifty% but its Cyberspace Taxable Income is more than than bones exemption limit then such assessee is required to maintain Books of Accounts and get information technology audited.
Advance revenue enhancement
Advance taxation is calculated past estimating the current year income and so applying tax rates on it. Tax deducted at source (TDS) / Tax Collected at source (TCS) and Minimum Alternating Revenue enhancement (MAT) credit shall exist deducted to arrive at Advance Revenue enhancement Liability.
Any assessee who'south accelerate tax liability is more than Rs. 10,000 is liable to pay accelerate revenue enhancement on the following due dates.
| Due dates | Corporeality of Accelerate Tax |
| Upto 15 th June of the current year | Upto 15% of Advance tax liability must be paid |
| Upto 15 thursday September of the current twelvemonth | Upto 45% of Advance tax liability must be paid |
| Upto xv th December of the current year | Upto 75% of Advance tax liability must exist paid |
| Upto xv th March of the current year | Upto 100% of Accelerate revenue enhancement liability must exist paid |
If assessee opts to file the Income on Presumptive basis under section 44ADA then due appointment of Advance taxation shall be 15 thursday March of the Electric current year i.e. but one instalment.
TDS deductions
All the Income that a freelancer or a consultant obtains in the course of the year a certain amount of tax is already reduced by the employer concerned. Any Private/Visitor who is a resident in India having a Tax Deduction Account Number (TAN) and who is employing such freelancers or consultants on contract basis or for their expertise or for whatever other matters accept the authority to deduct TDS.
At that place are situations where freelancers and consultants are employed by individuals who do not have a TAN, in such cases the individuals concerned have no correct to deduct TDS and the liability to pay tax is on freelancers or consultants by mode of advance tax.
The following are the sections with the assistance of which the employers can deduct TDS of freelancers or consultants:
Applicability of TDS on contractors [Section 194C]
This Section states that any person (other than Private or HUF not liable to tax audit in the previous year) responsible for paying any sum to the resident contractor for conveying out whatsoever work (including the supply of labour), in pursuance of a contract.
TDS is required to be deducted on payments made to contractors if,
- Single payment is more than Rs. 30,000 or
- Amass payments to such contractors is more than Rs. 100,000 in the previous yr.
The rate of TDS shall be one% in case of an individual or HUF and ii% in other cases. Whether a person is considered to exist a contractor or a professional depends upon the nature of piece of work undertaken by them.
In instance of Individual and HUF, TDS is required to exist deducted simply if last twelvemonth turnover is greater than Rs. 1 Crore in case of concern or gross receipts are more than than Rs. 50 lakhs in case of profession
The expression, "work" in this department would include-
- Advertising
- Dissemination and telecasting including production of programs for such broadcasting or telecasting
- Carriage of goods and passengers past whatever manner of transportation, other than railways
- Catering
- Manufacturing or supplying of any product according to the requirement or specification of the client past using the materials purchased from such customer In case of the above, the TDS shall be deducted on the invoice value excluding the value of material, if such value of textile is mentioned separately in the invoice. Simply, if such value of materials is non mentioned in the invoice separately then TDS shall be deducted on the whole of the invoice value.
Applicability of TDS on Professional Services [Department 194J]
This Section states that any person (other than Private or HUF non liable to tax audit in the previous yr) responsible for paying any sum to any resident person for conveying out any professional services.
In case of Individual and HUF, TDS is required to exist deducted simply if last twelvemonth turnover is greater than Rs. 1 Crore in instance of business or gross receipts are more than Rs. 50 lakhs in case of profession.
TDS must be deducted if –
- Fees for Professional services is more than Rs.thirty,000 per annum (p.a).
- Fees for Technical services is more than Rs.30,000 p.a.
- Not-compete fees is more than Rs.xxx,000 p.a.
The charge per unit of TDS is x%, however if payment is made to the Telephone call Centre and so the charge per unit of TDS is 2% instead of 10% with effect from 01.04.2017.
TDS on Contract, Commission or Brokerage or Fees for Professional Services (Section 194M)
This section was added by Finance Act, 2019 and was in effect from 1 st September, 2019. This department states that any payment made for Contract, Commission or Brokerage or Fees for Professional person services by whatever Individual or HUF and if such payments are non covered under section 194C, 194H &194J so TDS on such payments will be deducted at 5% equally per section 194M.
TDS is not to be deducted under this department if sum or aggregate of sum paid or credited is less than Rs. 50 lakhs.
Agreement the aspect of ITR filings
In society to file the Income revenue enhancement return freelancers or consultants need to file either ITR-iii or ITR-4.
ITR-3 applies when income of freelancers or consultants are earned past providing professional services, Proprietary business concern or any other income which is chargeable to tax under "profits and gains of business organization or profession" in the nature of, interest, salary, bonus, commission or remuneration.
ITR-4 applies when taxpayers have opted for a presumptive income scheme under section 44ADA and declare 50% of their gross receipts every bit their income by filing ITR-4.
Is GST registration required for freelancers or consultants?
If the total aggregate turnover in the year from freelancing or consulting work does not exceed Rs.20 Lakhs (or Rs.10 Lakhs in certain states as specified by the Income Taxation Act) then, GST does not employ and hence it is non mandatory to be registered under GST.
Points to remember:
- If the total aggregate turnover exceeds Rs. xx lakhs and then eighteen% GST is applicable on nearly services. And so, for freelancing or consulting services the taxpayer must charge eighteen% GST from his clients.
- The taxpayer tin can provide inter-state services upto Rs.twenty Lakhs without registration.
- If GST is applicable to the taxpayer then, all the invoice issued by the taxpayer must be GST compliant.
Conclusion
Any person or grouping of person venturing into freelancing or into providing professional services must have adequate knowledge well-nigh all the to a higher place factors explained in the article.
References
- Income tax Department, Government of India website,Income taxation Act,1961 https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx
- Constitute of Chartered accountants of India,CA Final written report material
- Should you choose to be an Employee or Independent Consultant from a Taxation Perspective? https://www.apnaplan.com/employee-consultant-tax/
-
How freelancers, consultants can relieve taxes while filing ITRhttps://world wide web.financialexpress.com/coin/income-revenue enhancement/income-revenue enhancement-return-filing-how-freelancers-consultants-can-salvage-taxes-while-filing-itr/1547469/
-
Deductions, exemptions not available in proposed new tax regime https://economictimes.indiatimes.com/wealth/tax/what-you-will-lose-if-you-opt-for-the-reduced-tax-rates-and-new-tax/articleshow/73839079.cms
-
How to determine TDS liability for contractors, consultants and employeeshttps://taxmantra.com/how-to-determine-tds-liability-for-contractors-consultants-and-employees/#:~:text=Applicability%20of%20TDS%20on%20contractors%xx%5BSection%20194C%5D,-This%20Section%20states&text=of%20a%20contract.-,TDS%20is%20required%20to%20be%20deducted%20on%20payments%20made%20to,and%202%25%20in%20other%20cases.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in existent-life practical skill.
LawSikho has created a telegram group for exchanging legal noesis, referrals and various opportunities. You lot can click on this link and bring together:
Follow u.s.a. on Instagram and subscribe to our YouTube channel for more amazing legal content.
Do I Need To Register For Sales Tax If I'm A Consultant,
Source: https://blog.ipleaders.in/tax-implications-consultants-freelancers/
Posted by: deweyallonand.blogspot.com
0 Response to "Do I Need To Register For Sales Tax If I'm A Consultant"
Post a Comment