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Income tax query.

Mahesh (Proprietor) (45 Points)

15 December 2016

Hi, I represent a few overseas companies in India and market and promote their products in India through a very small propreitorship firm. When I am able to sell their products I get a commission from these foreign companies. I do not sell,buy or manufacture anything directly. In financial year April-16 to March-17,I expect to get around Rs.6 - 6.5 lakhs as commission. I have two queries as follows : 1.) My daughter ( who has turned 18 in March'16 and is studying in SY.BCom ) helps me by calling potential customers,co-ordinating,sending emails etc.Hence can I formally pay a salary of around Rs.15,000 / - to 18,000 / - to my daughter by cheque and claim it as a part of business ? Do I need to complete any goverment formality in order to do this ? 2.) While filing my income-tax return can I use form ITR-4S ? Thanks & best regards.

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9 Replies

Harshit Kabra (INVESTOR) (Student CA final) (1113 Points)
Replied 15 December 2016

if u are calculating ur income from business on presumptve basis than only u can file 4s. otherwse u need to file 4.

secondly,

if u pay the salary to ur child who is minor than such income will be clubbed in ur hand.

so ,there will be no benefits to u ,if u do this (if ur child is minor)

otherwise u can take benefit

gopal (student) (212 Points)
Replied 15 December 2016

https://m.economictimes.com/wealth/tax/paying-salary-to-spouse-can-lower-your-tax/articleshow/36197085.cms

Harshit Kabra (INVESTOR) (Student CA final) (1113 Points)
Replied 15 December 2016

but there must be their professional and skills and must be used their self knowledge
.in ur case ur daughter doing emails and encouraging potential customer so she is doing her self knowledge then u can claim benefits.

gopal (student) (212 Points)
Replied 15 December 2016

The Majority Act of 1875 (Indian Majority Act, 1875 earlier)[1] states that every person domiciled in India shall attain the age of majority on completion of 18 years and not before.
he said TURNED 18 not COMPLETED.

Sanjay S (Chartered Accountant) (1375 Points)
Replied 15 December 2016

Your query entails the following aspects:

1. Whether you can file ITR-4S - (For assessees having Presumptive income)?

Well, if you want to file under the above form, you may have to opt for presumptive taxation u/s 44AD of Income Tax Act, 1961. This means your income will be deemed to be 8% of your Gross Receipts.

However since your income is only in the nature of Commission, you are an ineligible assessee u/s 44AD and the presumptive taxation option cannot be availed.

That would imply that you can only file return under ITR-4 (and Not ITR-4S)

2. Whether clubbing provisions shall apply with respect to your daughter?

This has everything to do with when your daughter attains the age of 18years. If she has turned 18 yrs of age before the end of Financial year, then she will be considered a Major for that particular financial year. This means, your daughter who just attained 18 years of age in March 2016, will be a MAJOR for both FY 2015-16 and FY 2016-17.

Since she's a Major, any payment made to her will not attract Clubbing provisions u/s 64(1A). Hence, the salary you intend on paying your daughter will not be clubbed in FY15-16 & FY16-17. However, she may have to pay tax herself if the total income exceeds basic exemption limits.

3. Whether you can claim salary to daughter as expense in your business?

In your case, this is possible only if all following are satisfied:

*Not opted for presumptive taxation u/s 44AD (Not possible to opt in your case)

*Salary paid is not excessive in opinion of Assessing officer u/s 40(a)(2) (as compared to say, salary earned by similiar people working in similiar jobs in your area). For instance, your paying your daughter Rs. 15k and a similiar employee working for similiar job gets only Rs. 7K, then Rs. 8K (15K - 7K) will be disallowed by Assessing officer.

[The above 2 conditions are only illustrative and not something expressly given in the Act]

Hope this clarifies the issue

1 Like

Amit Jain (Proprietor ) (533 Points)
Replied 16 December 2016

For commission income ITR 4S can't be use

Abhishek Ranjan (Senior Accountant) (39 Points)
Replied 16 December 2016

Thanks Sanjay sir. The information is very useful and in an appreciable manner.

Mahesh (Proprietor) (45 Points)
Replied 16 December 2016

Dear Mr.Sanjay,

Thanking you and other contributors for your very precise and informative answers.

Two more queries as follows,if I may :

1.) If I pay salary to daughter ( as she is major now ) do I have to deduct professional tax from her salary ? If yes,do I have to deposit this professional tax with some goverment organisation ?

2.) I understand that I need to register for service tax only if my turnover ( i.e.commission receipts in my case ) cross 9 lakh rupees in any financial year ? Is this correct ? If GST is introduced next year what needs to be done by me ?

Thanks very much and best regards.

Sanjay S (Chartered Accountant) (1375 Points)
Replied 16 December 2016

Hey, Its a pleasure to share knowledge.

Regarding the 2 other questions you have raised:

1. Whether Professional Tax is required to be deducted from Salary to daughter?

In case of Salaried & Wage earners, the employer is liable to deduct Prof.Tax from the salary to employee and subsequently required to deposit the same to the State Government. In the case of other Individuals, such person is liable to pay the tax himself.

The rates to be applied pretty much depends on the State in which you are located, because the professional tax slab rates differ with different states. For instance, in Karnataka, Professional Tax comes into play only if salary payment is Rs. 15k or more; and the tax is payable at Rs. 200 per month.

You may visit the following link to get a perspective on the kind of rates that exist.

https://www.charteredclub.com/professional-tax/

Hence you may have to deduct Prof.Tax based on the slab rates notified in your State.

2. Whether Registration is required if Turnover (commission receipts) crosses Rs. 9 lakhs?

The following three categories of persons have to apply for registration under Service Tax Procedures:

Input Service Distributor;
Any provider of taxable service whose 'aggregate value of taxable service' ('aggregate value' has been defined in Rule 2(b) of The Service Tax (Registration of Special Category of Persons) Rules, 2005) in a financial year exceeds nine lakh rupees.
Service Receivers who are liable for ST on reverse charge basis.

Regarding the GST Procedures, I'm still working on understanding the various concepts. Its better I refrain from commenting on GST for now. Maybe the others can help you out on this one.

Hope this helps.