Under Indian tax law, 50% of a lawyer's professional receipts (income) are assumed to have been spent on professional expenses such as junior's fee, clerk's salary, travelling expenses, etc. Therefore, you are liable to pay tax only on 50% of your income although, strictly speaking, this is not legal if you are working in a law firm as a salaried person and therefore have zero professional expenses. Law contains this loophole as this provision assures tax collection on at least 50% of the income without wastage of anyone's time and energy!
Law also permits professional expenses to be over 50% but for that your accounts need to be certified as having been "audited" by a chartered accountant who, by using "creative accounting" techniques, can increase the professional expenses way beyond 50%!
The last thing I would want to do is to rely on a strangers comment (who also claims to be a law student...).
My CA advised me that the 50% deduction of your income isn't entirely that straight forward as it is frequently claimed to be. So go consult your CA or better a tax lawyer for this, unless you are comfortable with paying 50% to 300% fines under the income-tax law.
By retainer, it means that as a lawyer I am giving my professional service to the firm. So technically I am not an employee rather a professional and the law firm is my client who is availing my services. Now question comes how will you get tax benefit ? If you remember your direct tax classes, there was a header of PGBP (Income from profession, business... gains). So lawyers get their tax deducted in this header which offers a lot of deductions as opposed to what an employee will have to pay under income under the head salary header which has way less deductions.
Btw, I am myself a final year law student so all this is my own assumption.
I may be right or wrong, but I am very clear about my perspective. ;)
Hi, What exactly are the tax benefits that lawyers get while working at law firms, considering they are "retainers" and not "employees"? I am a complete noob. Can someone please explain it in detail. Thanks in advance.
Under Indian tax law, 50% of a lawyer's professional receipts (income) are assumed to have been spent on professional expenses such as junior's fee, clerk's salary, travelling expenses, etc. Therefore, you are liable to pay tax only on 50% of your income although, strictly speaking, this is not legal if you are working in a law firm as a salaried person and therefore have zero professional expenses. Law contains this loophole as this provision assures tax collection on at least 50% of the income without wastage of anyone's time and energy!
Law also permits professional expenses to be over 50% but for that your accounts need to be certified as having been "audited" by a chartered accountant who, by using "creative accounting" techniques, can increase the professional expenses way beyond 50%!
My CA advised me that the 50% deduction of your income isn't entirely that straight forward as it is frequently claimed to be. So go consult your CA or better a tax lawyer for this, unless you are comfortable with paying 50% to 300% fines under the income-tax law.
I will illustrate it for you.
By retainer, it means that as a lawyer I am giving my professional service to the firm. So technically I am not an employee rather a professional and the law firm is my client who is availing my services.
Now question comes how will you get tax benefit ? If you remember your direct tax classes, there was a header of PGBP (Income from profession, business... gains). So lawyers get their tax deducted in this header which offers a lot of deductions as opposed to what an employee will have to pay under income under the head salary header which has way less deductions.
Btw, I am myself a final year law student so all this is my own assumption.
I may be right or wrong, but I am very clear about my perspective. ;)
What exactly are the tax benefits that lawyers get while working at law firms, considering they are "retainers" and not "employees"? I am a complete noob. Can someone please explain it in detail. Thanks in advance.