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Discussion > Income Tax > TDS >

Professional fees to an employee

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Accounts Manager - Taxation


[ Scorecard : 1292]
Posted On 02 November 2011 at 15:45 Report Abuse

Can we pay professional fees to an employee of company instead of salary or alongwith salary. TDS is applicable 10% (Prof. Fees)  or income to be merged in salary.

 


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CA Sripal Jain
Associate Finance


[ Scorecard : 709]
Posted On 02 November 2011 at 16:16

both are different on salary it is covered u/s 192 and normal slab rates for TDS is dere and professionals is covered u/s 194j so one cannot merge it and also remrbr if any sort of things happens disallowance also cn attract for short deduction





Mansi
CA (Final), B.com


[ Scorecard : 914]
Posted On 02 November 2011 at 16:46

Originally posted by : CA sripal jain

both are different on salary it is covered u/s 192 and normal slab rates for TDS is dere and professionals is covered u/s 194j so one cannot merge it and also remrbr if any sort of things happens disallowance also cn attract for short deduction

Am Also Agree with the same .. Both are diffrent Things...




amitmehta_ca
CA, CMA


[ Scorecard : 99]
Posted On 02 November 2011 at 17:09

Sir,

 

 You can either pay salary or Professional fess. As TDS on salary is covered u/ 192 and TDS on professional fees is covered under 194J.

 

You can adopt the route of retainership if the employee is professionally qualified and ask the  employee to provide you a retainership payment. Than the person will not be trreated as an employee and will be covered u/s 194J. He has to make sure in case payment to him exceeds or will exceeds Rs. 10 lacs to get himself registered for service tax and charge service tax in the bill.

Adopting the 194J route will put additional burden on the person as the income will be covered under PGBP and he has to make sure that he complies with all the formalties required to file the Income tax return.

Suggestions and rectifications are duly accepted

Regards

Amit Mehta




CA Tarun Jagdish
8893495263


[ Scorecard : 78]
Posted On 02 November 2011 at 17:18

Yes both can be given .. There can be situation where a same person is working in two different capacities. Lets say a CA is in Employment. He gets salary. Along with that doing consultancy for the firm for which company has agreed to pay him additional fees. Then He Salary would come under 192 B and Fee would come under 194 J

 




amitmehta_ca
CA, CMA


[ Scorecard : 99]
Posted On 02 November 2011 at 17:21

Dear Tarun,

Then the bill will be raised in the name of firm and not in the name of employee and the company will be making payment to firm and PAN no. will be of Firm not the employee.

 

Regards

Amit Mehta




Surendra Agarwal
Accounts Manager


[ Scorecard : 284]
Posted On 02 November 2011 at 17:43

Yes tarun it is right. . . .



CA Tarun Jagdish
8893495263


[ Scorecard : 78]
Posted On 02 November 2011 at 17:50

Sorry .. i made a typing mistake.. There is no firm involved.. Indivual is getting paid in his individual capacity. Then His own PAN will have to be quoted right




amitmehta_ca
CA, CMA


[ Scorecard : 99]
Posted On 02 November 2011 at 18:27

Dear TARUN,

 

Fees and commision are taxable as salary irrespective of the fact that they are paid in addition to or in lieu of salary. Even where salary are paid to employee under two separate agreements, commision or fees would be taxable as salary when the work done under the agreement by the employee for the benefits of employer. Refer case CIT Vs T. Abdul Wahid & Co.

 

"""The facts as set out in the order of the Tribunal and in the statement of the case before us, clearly show that these two individuals were the employees of the firm during the relevant period and they were paid salary. A contract of employment necessarily involves the rendering of services by the employee to the employer and the use of his skill, energy and time for the benefit of the business in which he is employed. If the employer chooses to remunerate those services by adopting different measures for different aspects of the services received from the employee, the payments nevertheless retain the character of compensation to the employee for the skill, labour and the time put in by the employee for the benefit of the employer. The definition of salary in Section 17 of the Act is couched in wide terms to take into account the remuneration paid to the employee, whether it is labelled as salary or otherwise by the employer. It is not the label given to the payment that is determinative of the question as to whether it is salary. The definition of salary in Section 17(1) of the Act is an inclusive definition. Sub-clause (iv) of Section 17(1) of the Act makes a specific reference to commission paid in lieu of or in addition to any salary or wages. As observed by Lord Denning the words of the statute are ultimately to be regarded as decisive. When the language of the statute is plain and unambiguous, the widtth of its meaning cannot be cut down by importing the principles laid down in the cases decided under other statutes in the background of facts which are wholly dissimilar.

10. The commission paid to these two employees is to be regarded as part of the salary and the Tribunal was in error in holding otherwise. The mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when undisputably all the work done under the agreement was performed by the employee for the benefit of the employer. The fact that the employer utilised the same employee to perform different types of work under two separate agreements does not give to such payments a character other than that of "salary", having regard to the wide definition of the term in Section 17(1) of the Act. The Income-tax Officer was right in taking the view that the commission paid was part of the salary."""

 

Referring to the above case its very much clear that you cannt make payment to employee other than salary and even if you make payment to employee other than salary that will be treated as salary.

 

Regards

CA Amit Mehta




CA Sripal Jain
Associate Finance


[ Scorecard : 709]
Posted On 02 November 2011 at 19:33

hello amit first point it is not a landmark judgement and please he is not speaking about commission ,he is speaking about the professional fees,it is entirely diff from salary and can never form part of salry...so get your facts rite..third the case speaks about commission and the section iitself has wording of commssion in definitin of salary

fourth never income tax dept wil want to loose revenue...so please go by the interpretation 



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