Regular salary vs consultancy: Here's how the tax treatment differs

Nowadays, many of us prefer to work independently as a consultant or freelance than being associated with full time with an organization, being on their payroll. This is because of the enormous flexibility one gets to have by being self-employed. However, it is equally important to understand that flexibility cannot be the sole determining factor to choose self-employment over being salaried. Financial and tax compliance plays a significant role in deciding which option is more suitable for you. These have been discussed in this article.

Taxability

First and foremost, it is important that one understands that a salaried individual gets taxed differently from a professional consultant. If you are salaried, you can offer income from salary after claiming various exemptions like House Rent Allowance, Leave Travel Allowance, Children’s Education Allowance, Standard Deduction etc. The net salary income will be taxable under the head “Income from salary”. An independent professional determines his taxable income by reducing all business-related expenses from his gross receipts. His net income will be chargeable under the head “Profits and Gains from Business or Profession”. However, the rate of income tax payable on both would be one that is applicable to the income slab the taxpayer falls under. Read Complete Article

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