Income tax and service tax for independent it consultant

Ubaid (Consultant) (1 Points)

29 April 2017  

Hi,

I am working as a Salaried Employee for one IT company and my current salary is 15 Lakhs Per Annum (including Basic, DA, HRA, PF etc). I was looking into working as a contract employee or external consultant with the same company with same pay in order to save my tax liability (I'm under 30% tax bracket). Following are my current tax saving items:

  1. I claim house rent of 20,000 from my salary. HRA is 25000.
  2. I already have 80C investments of 1,50,000
  3. I am already claiming all other reimbursements (part of CTC) like Telephone, Medical, Conveyance etc

I have following questions now (sorry, its a long list)

Service Tax Point of view:

  1. If I work as an external consultant, do I have to bill 15% SERVICE TAX to my employer? (I'm already above 10 Lakh so I assume yes)
  2. Is there a way to reduce this service tax liability? (I'm not sure about Input service tax / output service tax etc)
  3. Since GST has a threshold of 20 Lakh, should I wait for GST before I switch from a permanent employee to an external consultant? I'm assuming I will not need to bill GST in this case. Please clarify.

Income Tax Point of view:

  1. I'm assuming they will deduct 10% TDS before paying me, which is fine with me. Is there a way to avoid 10% TDS?
  2. I'm hoping to claim business expenses : Car fuel, Internet / Phone / Electricity bills, rent, Assets / Laptop / Printers etc depreciation to reduce my Income Tax liability. What other expenses can I claim (considering I will not be hiring any other people)
  3. Does Presumptive Taxation work better in this case? I am OK to keep all bills and maintain book of records.
  4. Will auditing be required if I have no other source of Income? My turnover will be 15 L PA from the invoices raised to my current employer.

I understand that by switching from permanent employment to consultant mode I loose benefits like Company Health Insurance, Paid leaves, PF etc and I am OK with it. My queries are mostly from compliance and tax saving point of view. Kindly guide!