Income Tax Calculation for Consultants/Contract Based Employees

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Companies have now started expanding their business in all genres. As a result, outsourcing consultants or contract based employees have become a common practice among major firms. These consultants or contract based employees obviously work in the same status alongside the fixed employees of a firm. But they are not entitled to benefits similar to the normal employee. Thus certain benefits like Allowance for house rent, leave and travel benefits and employee pension income is not available for consultants.

Taxable Income for Consultants

The taxable income for consultants is calculated in a different manner than regular salaried employees. But they are also liable for some deductions on their taxable income. The taxable income is calculated on the basis of the total expenses paid for the purpose contracted for plus the hiring charges. Any personal expenses incurred by the consultant who has been hired is not taken into consideration here. The total Income Tax amount to be paid by the consultant is then calculated as per the current Income Tax slab rates.

Income Tax Returns For Consultants

The type of employee status consultants gain is different from regular employees. The lack of an employer and employee relationship here, their income calculation is different from normal salaried income. As a result, a consultant cannot apply for Income Tax Returns. The only way they can file an Income Tax Return is when they declare that their income comes as the head of the Business specialized in.

Tax Deducted at Source For Consultants

TDS or Tax Deducted at Source are those taxes that are already subtracted before the gross income is paid to a salaried individual. This also implies that the TDS differs for consultants as they are having a different type of employee status. There are not many complicated calculations involved here. A flat 10% TDS in deducted from the income of consultants.

Income Tax Benefits For Consultants

Consultants had to regularly maintain a record of their taxes. This includes complicated balance sheet calculations. Thus it gets very difficult to maintain financial records. To make it easy for consultants the Union Budget 2016 introduced the concept of Scheme of Presumptive Taxation. The Scheme of Presumptive Taxation states that a consultant need not maintain any record of their income. They must disclose 50% of their total income upon which the income tax will be applicable. Thus, for consultants, this is one of the major tax benefits.  This Presumptive Taxation system gives an excellent leverage to the consultants as their tax burden is reduced completely by half. These perks in the deduction of Income Taxes by half are given to consultants on the basis that they do not enjoy the other tax exemptions like normal employees working for one single firm.  Thus the taxation system in a sense remains fair to consultants and regular employees alike.

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