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HowdoIbecomeIndependent?Companyformation,Taxesetc

Theeasiestwaytostartonyourownistobecomeanindependentconsultant.Thereisalmostnothingmuchrequiredtogetstarted.FollowingaresomeofthekeystepsthatyouneedtotaketobecomeIndependentConsultant:

1.StartwithaProprietaryFirmundersomename(yourownnamewouldsuffice).Yourhomecanbeyourfirmspremises.Youcanhavejustasavingsaccounttodeposityourearnings.2.IdentifyaCharteredAccountant(CA)toworkwith,fromalong-termperspectivebasis.CAwillbeyourmostimportantpartnerthroughyourIndependentConsultingjourney.3.AssumingthatyouhaveaPANnumberalreadyavailablewithyou,theCAwillapplyforyourProfessionalTaxEnrolmentNumberandProfessionalTaxRegistrationNumber.BeingSelf

Employed,youhavetogetyourselfenrolled,obtainaProfessionalTaxEnrolmentNumber,andpayasumofRs.2,500/-everyyeartotheGovt.OfMaharshtra.Theapplicabilityoftheseprovisionsvaryfromstatetostate.Likewise,aProfessionalTaxRegistrationnumberisnecessaryforthebusinessestablishmentandprofessiontax,ifyouhavestaff,tobedeductedfromstaffsalaries,andpaidtotheGovernment,onamonthlybasis.4.WithPANnumberalreadyavailable,theCAwillapplyforyourServiceTaxnumber.Servicetaxisapplicableonlyifyourgrossreceipts(income)islikelytobeequaltoormorethan

Rs.10lacsperfiscalyear(ApriltoMar).5.AllformsofconsultingservicescomeunderthenetofServiceTax.ServiceTaxhasbeenquitestableforthelastfewyearsandcurrentlyat10.3%ofthegrossbilling.Thisistoberecoveredfromclientsonaperinvoicebasis,andpaidtotheCentralGovt.,onamontlyorquarterlybasis,asmaybeapplicable.ThisisoverandaboveyourIncomeTax.Buthangon,Ihaveexplainedbelow,howin-spiteofmultipletaxesyouwillstillendupbetterthantheTDSthatgetswipedoutonsalaries.6.Openabankaccount(savingsisfine)specificallyfortransactionsunderthe

IndependentConsulting.ThishelpsineasycomputationduringallTaxfilings&Returns.Youneedtoensurethatallincomecominginfromconsultingsourceshouldbedepositedinthisaccount.Allyourotherincomes(shares,propertyetc),shouldgointoadifferentsavingsaccount.7.YoushouldthencreateaninvoiceformatthatprovidesyourServiceTaxnumber,Bankaccountdetails(A/cnumber,MICRcode,NEFTCode,RTGScode,IFCIcodeetc)(wh

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ichareavailableoneverychequethatyouhavebeensigning),sothatyourcustomercandepositmonieselectronicallyinyouraccountwithouthavingtoissueachequeeverytime.8.EnsurethatyougetPay-slipsforeverypaymentfromyouremployer(forcorrectcomputationofServiceTax)andFORM16A,forTaxfilings.9.Finally,Irecommendthatwhenyouarestartingonyourfirstconsultingcontract,itisbesttonegotiateaRetainerbasedmodel,whereyouwillbepaidafixedamounteverymonth,ratherthanattemptingtobillonHourly,DailyorWeeklybasis.10.ServiceTaxispayableeveryquarterfromtheprecedingquarterbefore5thofthemonthofthatquarter.Insomecases,likeinpartnershipfirmsandcompanies.itispayableonamonthlybasistoo.11.AdvanceTaxispayableasperGovernmentrules&schedule.EnsurethatyourCAcomputesanoptimumamount(usuallyonthelargerside)asadvancetax,sothatwhentheyearlyTaxreturnsisfiled,youdonothavealargeamountpayable.

IhavelivedajourneyofIndependentConsultantinIndiasince2003.Inthisjourney,Ihavehadexperience(once)ofmycasecomingupforinquiryfromIncomeTax.TheexperienceissomethingIcannotreproduceinthisdocument,butitwasaninsightfullearning.Topenitintwolines,IlearntthatnomatterhowcarefulyouareindoingtheRightthingsintherightway,therearenumerouswaystoshowitasanattempttodowrongthinginarightway.Comingbacktomyearlieradviceof

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choosingagoodCAwasfromaperspectiveofhowbestyoucanoptimizeyourtaxes.Beware,neverdodgethetaxes,buttherearelegalwaystooptimizethem.Bybeingindependent,yougetalltheopportunitiestooptimizethetaxes.Someofmykeyexperiencesarebelow:

1.ServiceTaxiscomputedonyourinvoicevalue.Ifyoumanagetonegotiatethatasextrapayablebyyouremployer,thenthereisnoissue(zerosumgame).YougetST,thesameamountyoupaytotheGovernment.Cleanandsimple.2.IfSTisnotpaidtoyouandmadeinclusiveaspartofyourcompensation,thentheCAhastocomputethesame.Oncecomputed,astraightchequeofthatamounthastogoout.3.FromIncometaxperspective,thereisalottooptimize.Firstandforemost,wheneverapaymentismadetoyoubytheemployer,itwillcomewith10%TDS.4.Second,IncomeTaxispayableontheprofitsyoumakefromtheamountthatisreceivedbyyou.

5.SotheamountthatyougetfromyouremployerisIncomeandyouhavetoshowexpensestocomputetheprofitsand33%ofthisprofitispayableasIncomeTax.6.NowyourCAwillhavetoworkoutyour(operating)expenses,whichshouldideallyincludeexpensesrelatedtoyourowncar(requiredtransporttoclientssite),cliententertainmentexpenses(yourvisitstorestaurantsonceinawhile),premisesexpense(thetable,AC,fan,chairsthatyougot)soandsoforth.YourServiceTaxamountisalsoconsideredasanexpense.7.TherewillbeCAscharges(whichalsogoasanexpense).Thesechargesvaryfr

omCAtoCA.Sometakebasedondeliverableslikecomputing&payingServiceTax,FilingReturns,ComputingandPayingAdvanceTaxandfinalconductingAudit.SomeCAsmaytakeafixedfigureannuallytocoveralloftheabove.8.FinallytakingintoaccounttheTDSamountsandtheadvancetaxpaidbyyou,thefinalTaxamount(dueorreceivable)iscomputed.9.Althoughonegetstemptedtoshownoprofits,itisnotrealistic.Sooneshouldtakeaproperviewonthetax.Letmeassureyouhoweverthattherewillbesignificantsavingofyourtax

outgocomparedtowhileyouwereemployedasapermanentemployee.

Tohelpyougetquickadviceandservices,StaffOnContracthasmadeavailableaccesstoourpanelofCAs.Atanominalfee,youcanestablishyourfirmtobecomeanIndependentConsultant.YoucaneitherchoosetoengagewithourpanelofCAsoridentifyyourown.

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HappyIndependence!

Abouttheauthor

ChetanistheFounderandManagingDirectorofStaffOnContract,aprojectofJouleConsultingPvt.Ltd.StaffOnContractisauniqueprotalencouragingsubjectmatterexpertswantingtobecomeentrepreneurs/independentconsultants.Withastintofover20yearsintheITindustry,Chetanturnedindependentconsultantin2003.ContinuingtoconsultonvariousaspectsofManagement,Sales&Marketing,Chetanhasestablishedtwootherprofit-makingentrepreneurialventures.Chetancanbereachedatchetan.indap@staffoncontract.com.

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