Consultants in India

General Discussions
1

Hi wonderful people,

I would like to understand how are consultants in India considered with regards to

  1. Payroll
  2. Compliances
  3. Taxation
  4. Any other things that must be considered

Thank you in advance

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4

Hi @Ludy ,

1. Payroll

Nature of Payment:

  • Service Fees: Consultants are paid fees for their services rather than a salary.
  • No Fixed Salary: Unlike employees, consultants do not receive a fixed monthly salary or benefits such as provident fund, gratuity, or employee state insurance.

2. Compliances

Contracts:

  • Service Agreement: A detailed service agreement outlining the scope of work, payment terms, deliverables, confidentiality clauses, and termination conditions is essential.

Labor Laws:

  • Exclusion from Labor Laws: Consultants are not covered under many labor laws that apply to regular employees, such as the Shops and Establishments Act, Payment of Gratuity Act, etc.
  • Work Hours: Consultants have flexibility in work hours and are not bound by the working hours regulations that apply to employees.

3. Taxation

Income Tax:

  • Self-Employed: Consultants are considered self-employed and their income is taxed under the head “Profits and Gains from Business or Profession”.
  • TDS (Tax Deducted at Source): Clients deduct TDS at 10% on the fees paid to consultants if the annual payment exceeds â‚ą30,000. This can be higher if the consultant does not provide a PAN card.

GST (Goods and Services Tax):

  • GST Registration: If the annual turnover exceeds â‚ą20 lakhs (â‚ą10 lakhs for some special category states), consultants must register for GST.
  • GST Compliance: They need to charge GST on their services (currently at 18%), issue GST-compliant invoices, and file regular GST returns.

Advance Tax:

  • Quarterly Payments: Consultants need to pay advance tax in four installments (June, September, December, and March) if their total tax liability for the year exceeds â‚ą10,000.

4. Other Considerations

Professional Tax:

  • State-Specific: Some states in India levy professional tax on professionals including consultants, which needs to be paid annually or semi-annually depending on the state’s regulations.

Accounting and Record-Keeping:

  • Invoicing: Maintain accurate records of all invoices issued to clients.
  • Expense Tracking: Keep track of all business-related expenses for tax deductions.
  • Books of Accounts: Maintain proper books of accounts and get them audited if the turnover exceeds the prescribed limit (currently â‚ą50 lakhs for professionals).

Insurance:

  • Professional Liability Insurance: It’s advisable to have professional liability insurance to protect against claims of negligence or malpractice.

Compliance with Other Laws:

  • Intellectual Property: Ensure proper clauses in contracts to protect intellectual property rights.
  • Data Protection: Adhere to data protection laws, especially if handling sensitive client information.

Hope this helps.

Chitra

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5

This is so great @Chitra , appreciate the revert.

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