Sole Proprietor - Query About Rent & Salary

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Vikram (Querist)
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23 March 2010 Dear Experts,

I am a small Web designing and hosting service provider with a turnover of Rs.9 lakhs. It means I don't come under Audit. Secondly don't have any TAN number, so can't deduct any TDS and I operate from home which is my mother's home.

- Can I pay rent to my mother? ( We all stay at the same home and I am doing my business from there) Also, my mother receives some income from FD interest and nothing else and she doesn't file returns (age 62).

- Can I pay salary/freelance project payment to my brother? ( My brother has a small business of his own and have a income of around 1 lac. And instead of paying salary, Can I pay him the cost for projects he do as a freelancer for me?)

- Will both these expenses will be allowed in my business expenses as I don't deduct TDS?

Thanks to all experts for helping startups like me for your valuable time in solving our queries.

Amit Bajaj

Amit Bajaj (Expert)
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23 March 2010 you can pay a reasonable rent to your mother if the house belongs to your mother since you are carrying your business from home. Reasonable means rent which you would have paid had you been carrying your busines from a rented premises. I will further advice that the rent be paid by way of account payee cheque.

Similarly a reasonable salary can also be paid to your brother if he is actualy helping you in your business.

TDS needs to be deducted from rent if the rental amount exceeds Rs 120000 (limit further enhanced to Rs 180000 in the budget of 2010-11) and if you are covered u/s 44AB (persuming you are an Individual)

TDS from salary is to be deducted if it exceeds the exempted limit after considering deductions available to your brother.

If you are liable for deducting TDS from an expense and TDS is not deducted You will not be able to claim such expense.

Vikram

Vikram (Querist)
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23 March 2010 Thank you Amitji for your reply.

One of my friends told me that as Sole Proprietor (no audit required),I am not required to deduct TDS. So is it possible to pay a rent of 1,50,000 instead of 120,000 and salary of 150,000 without dedcuting TDS and claiming them as expenses.