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I work as a consultant. How much tax do I have to pay?

Consultants are required to pay service tax in addition to income tax. In some cases, they are exempt from service tax.

     Print Edition: November 1, 2007

I am working as a consultant in India for a US-based firm. I get paid Rs 10 lakh a year without any tax deduction at source. How much tax do I have to pay? Do I need to pay service tax in addition to the regular income tax? Also, what expenses are tax deductible?

Prachi, Pune

Consultants are required to pay service tax in addition to income tax. In some cases, they are exempt from service tax. For instance, the tax is not applicable if the job is executed overseas or if the payment is in foreign currency. Your income will be taxed at normal rates after deducting work-related expenses. These may include:

  • Office rent
  • Telephone (mobile and landline)
  • Electricity
  • Newspapers and journals
  • Books
  • Office stationery
  • Mail and courier service
  • Travel and conveyance
  • Car fuel
  • Vehicle insurance
  • Salaries (assistant, peon, driver)

You can also claim depreciation on the written-down value of the following items:

  • Office furniture
  • Office equipment (AC, computers, phones, cameras & other gadgets)
  • Vehicle

CALCULATING TAX LIABILITY

Annual income

Tax rate

Your tax

Up to Rs 1,45,000NilNil
Rs 1,45,001 to Rs 1,50,00010%Rs 500
Rs 1,50,001 to Rs 2,50,00020%Rs 20,000
Above Rs 2,50,00130%Rs 75,000
Total tax payableRs 95,500
There is also a 3% cess on the total tax payable

This list is not exhaustive. Usually all the expenses incurred for carrying out the business are deductible. Keep a record of all these expenses. If these expenses add up to, say, Rs 4 lakh, you need to pay tax only on Rs 6 lakh.

If you invest in options specified under Section 80C (PPF, insurance policies, pension plans, tax saving funds, NSCs, fixed deposits, school fees), deduct that from the taxable amount (Rs 6 lakh in this case). So, if you invest the maximum Rs 1 lakh allowed, you will need to pay tax only on Rs 5 lakh.

The above calculation is for women taxpayers. For men below 65 years, the tax exemption threshold is a lower Rs 1,10,000. For senior citizens above 65 years, the threshold is Rs 1,95,000.

The income tax can be deposited along with the 3% cess at any designated bank branch as advance tax in three instalments. The first instalment has to be paid by 15 September, the second by 15 December and the third by 15 March. The tax return has to be filed by 31 October. The new ITR-4 form has to be used for filing your return.

This is an interactive section for investors.  Do you have a query regarding your investments? Write to us at letters.moneytoday@intoday.com and we will give a detailed answer.

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