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Salary vs professional fees

SHIRISH S S (Proprietor) (1016 Points)

16 October 2017

2 out of 6 clients are not willing to get into GST. Whatever Fees are there they will pay salary and deduct TDS under 192.

I want to restrict receipts below 50L to be available for 44ADA.

I come in 30% brackets. My question is

1) If i take as Salary full amt will be subject to tax

2) If I take as professional fees, only 50% is subject to tax.

For s.no 2 every Rs100 i have to pay Rs 15.25 as GST and only 84.75 will be fees.

Which is beneficial salary or Professional fees. Other clients are giving proper professional fees with 18% GST.

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11 Replies

(Guest)

as a professional professional fess are always better

Kiran. S (CTO) (745 Points)
Replied 17 October 2017

Suppose ur Prof fees are 20lk. Net will be 16.95 lk and rest 3.05 will be GST.

suppose u dont have deductions then tax on 847500 will be 82000

Salary of 20lk with no deduction, Tax will be 412500.

So professional fees --> GST 305000 plus Income tax 82000 = 387000

Salary total income tax =412500.

A gain of 25500.

Better ask for Professional fees with GST paid by them. They can take credit.

SHIRISH S S (Proprietor) (1016 Points)
Replied 17 October 2017

One of my client agreed to pay professional fees plus GST.

Now one client is adamant. it appears i have to absorb GST

Thanks anyway

Nikhil Bhat (Financial services) (133 Points)
Replied 17 October 2017

No other option but to tell him the benefits of GST. He must be receiving GST from other clients. While paying their GST this can be deducted.

SHIRISH S S (Proprietor) (1016 Points)
Replied 17 October 2017

will suggest ->need to share GST 50-50 .

Thanks all

S. Shiroor (Others) (1207 Points)
Replied 18 October 2017

@ Kiran You have given example for 20 lk . But the truth is upto 16lk Salary tax is less.

See the attached XL sheet. At a certain point both Salary and Professional receipt tax exactly matches. Moreover there are receipts from other clients. So the tax difference may be more if the receipt from that client is clubbed with other client.

Attached File : 1476782 20171018084737 sal vs prof.xlsx downloaded: 294 times

Nikhil Bhat (Financial services) (133 Points)
Replied 18 October 2017

@ shiroor Cant distinguish between first 16lakhs where only 6 lakhs is subjected to 30% tax AND

last 16 lakhs where all 16 lk is subject to 30% Tax. The difference between Salary Tax and Prof tax is going to remain same.

SHIRISH S S (Proprietor) (1016 Points)
Replied 18 October 2017

@ shiroor thanks for XL sheet. It needs further enhancement. Total sum of other clients can be added and other one is ratio of GST shared is important.

This XL sheet is for 100% GST to be absorb by me.

If fifty % is taken 0.5 * 0.1525 will be GST paid by me.

(Guest)

And one more thing in business u can claim other deduction also also

if not go with 44 ada for 44ada fees taken as 44 ada better

SHIRISH S S (Proprietor) (1016 Points)
Replied 18 October 2017

@ samir in 44ADA - all expenses are deemed to be taken in 50% profit.

Other deductions in Chapter VIA is common to both Salary and Prof fees.

S. Shiroor (Others) (1207 Points)
Replied 18 October 2017

@ samir yes true. Other deductions, loss from House property and income from other sources and clients will be common to both sides - Salary and Professional income. Hence ommited for simplicity.