Contracting charges - 1% vs. 10%

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Mahesh K

49 Points Posted on 03 September 2012

I have employeed couple of resources as full time contractors for my propraitorship firm. I set their designation as Software Engineer.

I have to pay them the salary (around 7000 each). How much contracting charges should I deduct, 1 % or 10%?

What is the difference between these two type of contracts?

Also, do I need to deposit the deducted amount to any govt. department? If yes, where and what is the procedure?

Thanks in advance

regards,

Replies (5)

O.D.SHARMA

DGM-F & A

1654 Points Posted on 03 September 2012

Hi,

The basic diff. is wording.If you say salary ,You have to see if taxable.Other vise contract means a manpower supplier.The contract will be there .The rate will be diff.for firm.1st u make things clear.

Mahesh K

49 Points Posted on 03 September 2012

Hello Sir, thank you for your reply.

I have hired those resources for long term (1 year contract) and agreed to pay the payment monthly (Rs. 7000). Also, I am planning to pay them in cash.

How much charges should I deduct and do I need to deposit those deducted charges to I.T. Dept.?

Thanks andd Regards,

CA Naresh Pareek

Practicing Chartered Accountant

103 Points Posted on 04 September 2012

If you made contract, then it is the contract for professional services. you will not be paying salary but be paying service charges of Rs. 7000. If it is so, then you will have to deduct TDS @ 10% on the amount paid or credited which ever is earlier. And the deducted amount is to be paid to the credit of Central govt. till 7th of the next month.

Mahesh K

49 Points Posted on 04 September 2012

Thank you Naresh for your reply.. So what is the difference between those two type of contracts (1% and 10% TDS deduction)? Also, could you please let me know what is better for a small IT firm in terms of legal and tax simplicity, hiring professionals on contract or on payroll? Thanks once again. M

CA Naresh Pareek

Practicing Chartered Accountant

103 Points Posted on 05 September 2012

both are contracts, but when the contract is made for providing professional services TDS is to be deducted @ 10 %. If you ask for legal & simplicity you can put them in payroll so you will not have to deduct TDS untill it cross or likely to cross Rs. 200000 in a year. But if your firm has to pay PF then you will have extra burden and you should not put them on payroll.