Consultancy & Freelancing Jobs from Overseas to be Taxed Differentially

CONSULTANCY & FREELANCING JOBS FROM OVERSEAS TO BE TAXED DIFFERENTIALLY

The burgeoning economy of India provides vast opportunities for individuals to earn incomes from overseas while rendering services in India.  Such opportunities are available in professions such as software, website, or application development, liaison services, content writing, accounting and book keeping, industrial designing, market research, feasibility studies, language translators, any form of training, equity research and medical documentation to name a few.

Consultancy or any other form of income earned from foreign sources is to be treated differentially by the government when it comes down to taxation.

Individuals that are appointed as independent consultants or service providers by foreign companies receive income that is taxable under the head “Profit and Gains of Business or Profession.” Even if an individual retains a full time job and has a parallel occupation whereby he or she earns remuneration from abroad the tax liability remains unchanged.

As per the Indian Income Tax Act certain conditions need to be satisfied for an income to fall under the head of “Profit and Gains of Business or Profession.”

·        There should be business or profession.

·        The business or profession should be carried on by the assessee.

·        The business or profession should have been carried on by the assessee at any time during the previous financial year.

A key point to be noted is that if the individual is employed by a foreign firm then their income earned will be taxed like regular salary, but in case if the individual is providing the service along with another individual, it is pertinent to determine the status as a firm or company as that changes the manner in which tax is determined.

The level of compliance when earning income as a business or profession is higher than when earning a salary.  For one, the assesee needs to maintain books of account and if the income from a profession in a financial year is more that Rs. 15 lakh the accounts will need to be tax audited while the threshold is Rs. 60 lakh for a business.  Further, if the service is provided along with another individual, it is important to define the status of the entity as a firm or company as that will determine how the income will be taxed.

Asst.Editor

Dimple Chainani

Read more on this