Transitioning to Consulting: How to Navigate TDS and Tax Deductions as a Contract Employee?

Dear Seniors,

I plan to move on in my career as an independent consultant/analyst. One of my prospective clients, however, wishes to employ me as a contract employee, paying a fixed sum per month for 1 year. Annually, it would exceed 5 Lakhs. What % TDS would be deducted in such a scenario? I hear multiple answers such as 10.33% or 2%, etc. What would be my final tax liability %? What kind of deductions can I claim, given that in the future scenario, there is no PF, no HRA, no LTA, no Gratuity, etc. Is it beneficial to incorporate a company and let the client hire the services of the firm rather than me as an individual? Any advice is greatly appreciated.

Ram

Hi,

Joining a company as a consultant will provide you flexibility in terms of time and responsibilities, but it will deprive you of employment benefits like PF, gratuity, etc., and the most important part - job security. You can negotiate with your employer, considering at least the PF amount, and ask them to provide Personal Accident Insurance coverage. Any consultant fee above Rs 20,000 per annum attracts taxes at 11.36 percent. If you end up paying extra taxes, it could be claimed while filing your IT return at the end of the financial year. Do check the exit terms and conditions before signing the contract.

Regards, Renu