employment vs consultancy
Abhishek Lyall
(Querist) 11 March 2012
This query is : Resolved
Dear All,
My company has given me appointment letter stating that your professional fees is xx amount and deduct TDS under section 194J @ 10% of the income Tax.
I am required to put in 20 days of work in a month and cannot take any other work assignment without the permisson of the CEO. I am also required to sign the attendance every day and apply for leaves, as required by any other employee of the organisation.
Only difference between the reqular employee and myself is that I am not eligible for any other benefits like PF, Graduity etc.
My query is since my work is controled on day to day basis by my boss and I restricted to take any other work, whether still I will be considered as a Consultant or employer and employee relationship exists.
If Emploeyer and employee relatioship exists can TDS be deduted under Salaries?
Thanks
Raj Kumar Makkad
(Expert) 11 March 2012
TDS is deducted even on all payments made against hiring of service of any individual whether he may be an employee or a contractor or otherwise.
Your appointment letter is the best evidence to designate your status. You are not a regular employee of the company even though there are various similarities of the regular employees with you.
H.M.Patnaik
(Expert) 12 March 2012
Deduction of TDS out of payments released to a person does not by itself establish a Employer- Employee relationship.You have find out from the Form-16/ 16A issued under what Section Income tax has been deducted from youto reach a conclusion in the matter.
Abhishek Lyall
(Querist) 13 March 2012
My query was based on the supreme court ruling- Shivnandan Sharma v. Punjab National Bank Ltd, Dhrangadhra Chemical Works Ltd. v. State of Saurashtra, where it says that where the employer has right to control the relationship is of employer and employee. Hence TDS should be deducted under salaries and not under section 194J.
Guest
(Expert) 13 March 2012
TDS is not dependent on the nature of job, irrespective of whether it is a regular, casual or contractual employment. TDS is deducted on the income if falls within the taxble limit at the source of income.
Anirudh
(Expert) 14 March 2012
I think many of the experts who have answered your query does not seem to appreciate the import of your query. The fact that Mr. Dhingra is so forthright (though without understanding the seriousness of the same) in saying that "TDS is deducted on the income within the taxable limit at the source of income" proves this point.
Even Mr. Makkad seems to be thinking as though you are objecting to the TDS per se, without realising that your query is whether TDS is to be done under 'professional services' or under 'salary head'.
Again, Mr. Patnaik misdirects himself and concentrates on Form 16/16A.
All of them miss the point that your concern is whether you are an employee or a professional (consultant), especially keeping in view the contents of the appointment letter; the attendant conditions/restrictions; requirement to sign attendance; the need to apply for leave etc.
Dear Mr. Abhishek, I have no iota of doubt that from the facts revealed by you, there is an employer-employee relationship. The employer is to effect TDS as though you are an employee. Having accepted those conditions and restrictions in the appointment letter - instead of a simple engagement letter as a consultant / retainer - you will not be in a position to claim your relationship as a 'freelance professional'. The decisions of the Apex Court cited will definitely get attracted. The substance of the arrangement will be the basis and certainly not the form.
Better ask the organization to completely change the terms of your engagement (by removing all the conditions and restrictions, not to talk in terms of granting of any leave or signing attendance etc.) to bring it as a 'professional' relationship. If they refuse to do so, then ask them to deduct TDS as though you are an employee. If that happens, naturally, you will have to work for all the 30 days (except the weekly holidays) as other employees and cannot be for 20 days in a month!
You have to take a call.
Abhishek Lyall
(Querist) 14 March 2012
Thanks Aniruth for your Valuable advice
