So, you've made the exciting switch from a standard IT job to offering your expertise as a consultant to clients in the US, UK, Turkey, and beyond.
Life as an employee was simpler tax-wise, but now you're in the driver's seat and can potentially make significant tax savings.
Let's break down the compliance side of things and how you can make the most of your new setup.
The Basics: Consultancy Business = Income Tax + GST
As a consultant, you're running a business. That means you'll need to handle both income tax and GST (Goods and Services Tax). Here's a quick overview:
GST Compliance:
1.GST Registration: Exporting services requires mandatory GST registration, even if you don't have to pay any GST in reality. (One-time activity)
2. LUT Filing- A Letter of Undertaking (LUT) lets you export services without paying GST. (Annual activity)
3. Monthly returns & Bookkeeping: Keep your financial records in order with bookkeeping & also file details of monthly turnover details in the returns, be rest assured as no tax liability will arise. (Monthly activity)
4. Annual Returns: File if your annual turnover exceeds certain thresholds. (i.e. ₹ 2 Cr - file GSTR 9 or ₹ 5 Cr - file GSTR 9C) (Annual activity)
Income Tax Compliance:
1.ITR Filing - File your ITR under the presumptive scheme of taxation (44ADA) - under this scheme, profits are presumed at 50% of the gross receipts. (Declared Profits % may increase depending on facts of case) (Annual activity) (presumptive scheme not applicable when Tax Audit is filed)
2. Advance Tax: This replaces the monthly TDS which was deducted from your Salary, as now you have to pay taxes either quarterly or annually:
a) Pay Estimated taxes quarterly (if presumptive scheme not opted). (Quarterly activity)
b) Pay Estimated taxes annually (if presumptive scheme is opted). (Annual activity)
3. Income Tax Audit: In case if Annual turnover exceeds ₹ 75 lacs, mandatory audit provisions kick in and you are required to get your books of accounts audited by a CA (Annual activity)
Other
1.Trade License: You may need one depending on your local regulations.
2. Professional Tax: Check if this applies in your state.
3. Separate Bank Account: This small step helps to keeps your business transactions organized.
The Big Takeaway: Tax Savings!
While the compliance aspect might seem a bit more complicated, the potential tax savings as a consultant can be substantial.
Disclaimer
This is general information and not a substitute for professional tax advice. Consult a tax expert for your specific situation.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
Quote of the day:
“The greatest glory in living lies not in never falling, but in rising every time we fall.”
-Nelson Mandela
Regards
CA Umang Jain
CA Hemant Bardia
+ 91 96323-32850
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