Architects, engineers, accountants, advertising and a host of other self-employed professionals could have something to cheer about in the Budget. The government may raise the ceiling for deduction of tax at source for these professionals, who work on project basis.
At present, the limit for deducting tax at source for professional or technical contract fee is pegged at Rs 20,000. But the government is likely to raise the limit substantially in the Budget. According to sources, the threshold was last tinkered with in 1994.
Taking into account the growth witnessed by the economy in past few years, there was a need to revisit it.According Section 194J of the Income Tax Act, 1961, if the fee for professional or technical service contract undertaken by any of these professionals is more than Rs 20,000, the contract awa-rdee has to deduct tax at the rate of 5%. Professionals covered under the rule include lawyers, engineers, medicos, architects, interior decorators, accountants those working in areas of advertising and broadcasting.
With the rise in the value of such projects in the last decade, the limits had become outdated. In addition, many of these professionals have often complained that the process of obtaining a refund from the income-tax office is time consuming.
Even in cases of zero tax liability, they are required to stand in queue at the office of assessing officers to get a certificate. Since most of these professionals work on low capital, blocked funds create problems of availability of working capital.
The limits were fixed long back and do not reflect the growth achieved by the economy in last few years. With a service tax of 12.2%, the limit of Rs 20,000 gets breached quickly. A large number of professionals would benefit if the threshold is enhanced, BSR & Co director Vikas Vasal said.