03 September 2022
1. individual provides professional service to a law firm. 2 amount from Oct 22 to March 23 is about 17 lacs 3 tds would be deducted when paid to individual 4 the individual is not registered for gst. 5 from fy 23-24 individual will be on the Payroll of Law firm. 6 what is the impact on the law firm. please let me know the idea being individual can get more funds in hand from Oct 22to March 22
09 July 2024
Here’s a breakdown of the impact on the law firm based on the scenario you've described:
### Current Situation (FY 2022-23):
1. **Professional Service by Individual to Law Firm**: - The individual provides professional services to the law firm from October 2022 to March 2023, totaling around Rs. 17 lakhs.
2. **TDS Deduction**: - Since the individual is providing professional services and is not registered under GST, TDS (Tax Deducted at Source) would be applicable on payments made by the law firm to the individual. The TDS rates for professional services are specified under the Income Tax Act, typically around 10% (assuming no PAN/Aadhaar linked, else 20%).
3. **Funds Received by Individual**: - The individual will receive funds net of TDS deductions. For example, if the payment for services rendered is Rs. 17 lakhs, the law firm would deduct TDS and pay the net amount to the individual.
### Future Plan (FY 2023-24):
4. **Transition to Payroll**: - From the financial year 2023-24 onwards, the individual will transition to being on the payroll of the law firm. This means the individual will become an employee of the law firm and receive salary income instead of professional fees.
### Impact on the Law Firm:
- **Compliance with TDS Requirements**: The law firm needs to ensure compliance with TDS provisions. This includes deducting TDS from payments made to the individual for professional services provided in FY 2022-23.
- **Transition to Payroll**: When the individual transitions to being an employee (from FY 2023-24 onwards), the law firm’s responsibilities change: - They will need to deduct TDS on salary payments made to the individual as per income tax slabs applicable. - The law firm will also be responsible for deducting and depositing other statutory deductions like Provident Fund (PF), Professional Tax (if applicable), etc. - Compliance with labor laws and other employment-related regulations will become necessary.
- **Financial and Administrative Impact**: - The transition from professional fees to salary could impact the law firm’s financial planning and budgeting for employee costs. - Administrative procedures for payroll management, compliance with labor laws, and employee benefits (like leave, insurance, etc.) will need to be established or revised.
### Conclusion:
The impact on the law firm involves ensuring proper compliance with TDS provisions initially and transitioning smoothly to payroll management from the next financial year. This shift from professional services to employment status for the individual entails changes in tax treatment, compliance requirements, and administrative procedures for the law firm. It’s advisable for the law firm to consult with a tax advisor or financial consultant to handle these transitions effectively and ensure compliance with applicable laws and regulations.
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