Question

I have recently become a consultant for some international organisations. My payments usually come in the form of forex deposited directly to my account. So far the gross amounts have ranged from ₹60,000 to ₹3,00,000 per month. Please suggest some tax-saving options for me. Also, what are the deductible options from the total income for tax-saving?

– NIKHAR MEHTA. GURGAON

Answer

The Income received from consultancy is treated as income from profits and gains of business or profession. As per Section 37 of the Income Tax Act, 1961, all eligible business expenses incurred in providing consultancy services are deductible from the consultancy income for the purpose of tax calculation. Prima facie, the allowable expenses in the case of consultancy include salary/wages to employees, administrative expenses such as telephone and electricity, conveyance expenses, rental expenses (in case of rented premises), expenses on books and periodicals, etc.

Question

I have a small design company of about four full-time staff. It is a proprietorship in my name. However, I now plan to make it a private limited company. Is it a good idea in terms of tax savings? Or will it just increase my documentation and workload? Please advise on the technicalities of this.

– RAJINI SUBRAMANIAM, CHENNAI

Answer

Converting a sole proprietorship into a private limited company does not, by itself, constitute as an effective tax planning measure. Current regulations allow deduction of expenditures, for the purpose of tax calculation, irrespective of the type of entity registered. Under the given circumstances, in order to minimise the time and efforts required to comply with regulatory requirements of a private limited company, it would be prudent to continue the sole proprietorship unless any major expansion is expected in the near future.

Question

My mother (who is a homemaker) inherited my father’s property on his death. Now she plans to rent out the house after extensive renovations and repairs, and then travel to Singapore to be with her sister. She did not fall into the bracket of tax-payer earlier but since it is a very large property, the rental income will definitely be taxable. I would like to know if there are any ways of saving tax as a landlord. Thanks.

– RATAN THAKKAR, MUMBAI

Answer

Income from rent of property, less municipal taxes paid on the same, are subject to 30 per cent deduction under Section 24 of the Income Tax Act, 1961. Additionally, in case any home loans are taken in order to buy, build, construct or repair your house, then the interest on the loan can be claimed as deduction. After the aforementioned steps are undertaken, your mother can pay the appropriate sum due as an individual income-tax assessee and enjoy travelling to Singapore or any other place of her choice.