Tax on Professional Income (Contract to Hire)
I am an IT professional from Bangalore. I quit my job recently due to personal reasons.
I have cleared the interview for a Contract to Hire (C2H) job with one of the MNC IT companies in Bangalore and I am yet to receive the offer letter from the agency. This is my first C2H job and I have no idea or knowledge about C2H jobs. I have the following queries to clarify before accepting the offer letter.
Is there a lower (i.e. 1 month, 2 month, etc) and upper limit (i.e. 6 months, 1 year, 2 years etc.) on the duration of a C2H job/position as per IT industry standards? What is the minimum and maximum duration of a C2H job in IT industry?
Is my income during the C2H tenure taxable? Will this income be accounted under professional income and taxable as per professional income tax slab? If so, what is the percentage of tax I need to pay towards my professional income? Is there a tax slap similar to permanent job? (Or) Is it a flat rate for all the earnings? What is the frequency at which I need to pay the tax?
Am I eligible for any tax rebate or exemption during my C2H period? Can I claim tax rebate or exemption for the expenses incurred during my contract period? What are the expenses for which tax rebate or exemption is applicable?
Can I claim tax rebate or exemption for the following expenses during my C2H period?
1. House Rent
2. Medical expenses
3. Mobile, Phone bills
4. Internet charges
5. Car fuel & maintenance expenses
6. Medical and Life insurance premium
8. House loan/interest
I understand from the agency that, there will be no TDS for the income I earn during my C2H period at their end and the agency will not provide Form 16 for filing my tax return. What form will I get from the agency for filing my tax return? How do I file my tax returns? Which form do I need to use for filing my tax return? What is the net taxable income I need to show in the tax return form?
Will there be any contribution to my PF from the agency? Will the agency deduct the professional tax from my salary? What other deductions will be done at the agency end on my monthly salary?
Is there any salary difference between a permanent job and a C2H job? Is the salary for C2H position higher than direct hire or permanent position? If yes, what is the percentage difference between these two?
I would appreciate if you could clarify the above queries.
Asked 2 years ago in Income Tax from Bangalore, Karnataka
Firstly Congratulations !!! on your new job.
There is No Upper & Lower limit on C2H Jobs but yes the average span varies from 6 months to 2 years.
Yes. The Income from C2H job received is more than the basic exemption limit then it will be held as taxable. The amount will be taxed as per the tax slab for the F.Y. 2015-16.
Yes you can claim expenses related to earn your contractual income, but no personal expense can be claimed as an expenses.
Investment made to claim deduction under chapter VI A and Housing Loan Interest/ Principle is also allowed.
If the agency is not deducting the TDS on your Contractual fees, then it is your responsibilty to pay the respective taxes before or at the time of filing of returns. It is better to hire a professional for all your Income Tax Return related matters in order to avoid undue hassles.
There is a salary difference between a C2H & permanent job. In normal scenario, the salary/ pay, perks of a permanent employee is higher than the C2H.
CA Rohit R Sharma
BCOM, CA, LLB - GEN, FAFP.
I will not get into the merits and demerits of C2H but confine myself only to the tax implications.
The income from the C2H will be chargeable to income tax - the issue is whether it is under the head salary or income from profession /business. The criteria for determining whether it is salary income or professional income is the relationship between the "employer" and C2H "Hiree". In my view the relationship is that of an employer and employee, as there is an option to hire or not at the end of the given period, which is more like confirmation of a job on completion of probation. The terminology may be different but the essence of the relationship is that of en employer and employee, as it has almost all the ingredients of such relationship.
If the employer treats the expenditure on C2H employees as salary, then he will be under obligation to deduct tax at source u/s 192 and issue Form No. 16. If he does not treat the expenditure as salary, he will have to deduct tax at source on such professional fee u/s 194J and issue Form No. 16A. In either case, he cannot avoid the statutory obligation to deduct tax at source.
If the income is treated as professional income, there will be service tax also if the income exceeds Rs. 10 L in the financial year.