Definition
Salary vs Consultant Taxation
A salaried employee and a consultant doing similar work are taxed differently: salary income has TDS and limited deductions, while consultancy income allows expense deduction or presumptive taxation.
As a salaried employee, your income is taxed under 'salaries', with TDS by the employer, access to salary-specific exemptions (HRA, LTA) under the old regime, and the standard deduction. You also get EPF, gratuity and statutory benefits, but cannot deduct general work expenses.
As a consultant (independent professional), income is business/professional income: you can deduct legitimate business expenses, or opt for the presumptive 44ADA scheme, and may need GST registration and to pay advance tax yourself. You typically forgo employee benefits like PF and gratuity.
Which is better depends on your expenses, desire for benefits and compliance appetite. Consultants can sometimes have lower effective tax via expense/presumptive treatment, but bear their own social-security and compliance burden.
Related terms
- Freelancer GST RegistrationFreelancers and independent professionals in India must register for GST once their turnover crosses the applicable threshold or in certain cases like export of services.
- Presumptive Taxation (44ADA)Section 44ADA lets eligible professionals declare a fixed percentage of their gross receipts as income, simplifying tax filing without maintaining detailed books of accounts.
- Advance Tax for FreelancersAdvance tax is income tax paid in instalments through the year rather than as a lump sum at filing; freelancers must pay it once their annual tax liability crosses a threshold.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.