We have a few employee working for a set of Responsibilities. They want to work as freelancers for part of the responsibilities. Can we reduce their salaries to justify the limited responsibilities and create a new contract for service (Professional Independent Contractor) for the part of freelance service. This is as major part of salary currently is in variable form and a very small portion is fixed also this will help them benefit in income tax us 44ADA and also have an option of salary for all benefits like health insurance gratuity etc keeping in mind that this will also help to keep the amount of freelance portion upto 50 lacs.
It’s a complex matter according to Indian labour laws. Please refer to this: https://www.cornelliachambers.com/indian-supreme-court-on-the-distinction-between-employment-v-independent-contractorship/ to understand the basic premise.
It is much more than providing tax benefits or moving heads under salary to contracting amounts.
This can done by revising the existing employment contract to alter the working hours and compensation appropriately. Secondly, issue another agreement to cover the contract part. Taxation is different in both cases and Form 16 & 16A to be issued at end of the year.
Yes ofcourse you can do so.