Proprietorship firm - salary or consulting fee

This query is : Resolved

Shubham (Querist)
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22 March 2013 Hello

I have a proprietorship firm and have hired some consultants/engineers who work on part time basis. They have salaried income from their regular jobs.

I have made payments of Rs 1-1.3 Lakhs each for last 6 months of work directly to their bank account. Work is adhoc and I pay them for hours worked.

I want to know

1. How should I classify this in my books - Salary or Consulting Fee

2. If Salary do I need to deduct income tax

3. If Consulting do I need to deduct service tax

Is their any format in which I should get a receipt from the consultants for my records.

Also provided the consultants do not want me to deduct any income tax or service tax from the payment, what can I do to ensure that I comply with all IT Rules from my end ensuring that I can accommodate consultant request for not deduction.

Thank You

CA Piyush Gupta

CA Piyush Gupta (Expert)
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22 March 2013 You have to deduct TDS and you cannot avoid the same. Since there is no employment of regular nature you should classify the expenses under consultancy expenses. Service Tax liability does not fall on you but you should get an invoice prepared in any format signed by them

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