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Calculator · Tax Year 2026-27

Employee or Contractor in India

Enter a budget. See who keeps more after tax and GST.

₹25 lakh a year

The contractor keeps ₹2,90,140 more a year

Employee In hand a month

₹1,76,372

₹21,16,460 a year

New tax regime

Contractor In hand a month

₹2,00,550

₹24,06,600 a year

Section 58 (old 44ADA)

You pay ₹25,00,000 either way. Counting the employee’s ₹72,000 of provident fund, the contractor is still ₹2,18,140 ahead.

See the full working

Assumptions

Provident fund
Fee received other than in cash

Six budgets

Take-home a year at six budgets, in the selected case
Annual budget, before GST Employee Contractor Difference
₹10 lakh ₹9,25,600 ₹9,82,600 ₹57,000
₹15 lakh ₹13,33,716 ₹14,82,600 ₹1,48,884
₹25 lakh ₹21,16,460 ₹24,06,600 ₹2,90,140
₹50 lakh ₹38,37,032 ₹46,15,400 ₹7,78,368
₹75 lakh ₹53,70,175 ₹67,25,400 ₹13,55,225
₹1 crore ₹70,12,175 ₹73,00,236 ₹2,88,061

Line by line

Employee
Salary structure
Annual cost to company (gratuity left out) ₹25,00,000
Basic pay and dearness allowance Code on Wages ₹12,50,000
Wages for provident fund EPF Scheme ₹3,00,000
Employer provident fund EPF Act ₹36,000
Employer NPS s.124(2), old 80CCD(2) ₹0
Gross cash salary (cost less employer PF and NPS) ₹24,64,000
Total income
Gross cash salary ₹24,64,000
Employer NPS, taxed as salary then deducted 17(1)(viii) ₹0
Employer PF and NPS above the ₹7.5 lakh cap 17(2)(vii) ₹0
Gross salary ₹24,64,000
Standard deduction s.19, old 16(ia) −₹75,000
Employer NPS deduction, up to 14% of basic s.124(2), old 80CCD(2) ₹0
Total income ₹23,89,000
Income tax, new regime
Tax at slab rates s.202, old 115BAC ₹2,97,250
Rebate, with marginal relief above ₹12 lakh s.156, old 87A ₹0
Tax after rebate ₹2,97,250
Health and education cess ₹11,890
Total income tax ₹3,09,140
Take-home
Gross cash salary ₹24,64,000
Employee provident fund EPF Act −₹36,000
Professional tax State levy −₹2,400
Income tax −₹3,09,140
Annual take-home, in cash ₹21,16,460
Each month ₹1,76,372
Retirement contributions built (employer and employee PF, NPS) ₹72,000
Take-home and retirement contributions ₹21,88,460
Income tax as a share of the cost 12.4%
GST
GST on salary: not a supply Sch. III para 1, CGST Act ₹0
Cost to the employer ₹25,00,000
Contractor
Eligibility and compliance
Annual fee, before GST ₹25,00,000
Presumptive scheme available? s.58, old 44ADA Yes
GST registration required? s.22 CGST Act Yes
6% composition available? s.10(2A) CGST Act Yes
Tax audit required? s.63, old 44AB No
Business expenses, for working out tax only
Business expenses, GST included (nil under section 58) ss.26 to 66, old 28 to 44 ₹0
GST credit on those expenses (regular registration only) s.16 CGST Act ₹0
Deductible business expenses ₹0
Running costs, taken off the cash in hand
Accounting and return fee ₹15,000
Books and tax audit fee (only above the section 58 ceiling) ss.62 and 63, old 44AA and 44AB ₹0
GST filing (only if registered) ₹24,000
Professional tax State levy ₹2,400
Total running costs ₹41,400
GST on the fee, in the selected case
6% composition applied? s.10(2A) CGST Act No
GST charged on the invoice at 18% ₹0
6% composition tax, borne by the contractor N.2/2019-CT(R) ₹0
GST credit on the contractor’s expenses s.16 CGST Act ₹0
Net GST payable, or refund ₹0
Client’s credit on the invoice s.16 CGST Act ₹0
Net GST cost to the client ₹0
Total cost to the client ₹25,00,000
Total income
Half the fee, counted as income s.58(2), old 44ADA ₹12,50,000
Income under the normal provisions (fee less expenses, running costs and composition tax) ss.26 to 66, old 28 to 44 ₹0
Total income ₹12,50,000
Income tax, new regime (no standard deduction)
Tax at slab rates s.202, old 115BAC ₹67,500
Rebate, with marginal relief above ₹12 lakh s.156, old 87A −₹17,500
Tax after rebate ₹50,000
Health and education cess ₹2,000
Total income tax ₹52,000
Take-home
Annual fee ₹25,00,000
Running costs −₹41,400
6% composition tax borne by the contractor ₹0
Income tax −₹52,000
Annual take-home, in cash ₹24,06,600
Each month ₹2,00,550
Memo: business expenses used for tax, added back here ₹0
Income tax as a share of the fee 2.1%
GST by client
A client abroad: export of services under LUT
GST on the invoice (zero rated) s.16 IGST Act ₹0
Net GST cost to the client ₹0
Total cost to the client ₹25,00,000
Contractor’s GST credit on expenses, refundable Form RFD-01 ₹0
An Indian company that claims GST credit
GST on the invoice at 18% ₹4,50,000
Client’s credit s.16 CGST Act −₹4,50,000
Net GST cost to the client ₹0
Cash paid before the credit is set off (fee and GST) ₹29,50,000
Total cost to the client after the credit ₹25,00,000
An Indian company that cannot claim GST credit
GST on the invoice at 18% ₹4,50,000
Client’s credit ₹0
Net GST cost to the client ₹4,50,000
Total cost to the client ₹29,50,000
Extra cost against employing at the same cost ₹4,50,000
The same, with the contractor on 6% composition
GST on the invoice (nil on a bill of supply; 18% if not eligible) ₹0
6% composition tax, borne by the contractor N.2/2019-CT(R) ₹1,50,000
Net GST cost to the client (no credit) ₹0
Total cost to the client ₹25,00,000
Client’s saving against the 18% case ₹4,50,000
Total GST borne by client and contractor ₹1,50,000
Combined GST saving against the 18% case ₹3,00,000
An employee, for reference
GST on salary: not a supply Sch. III para 1, CGST Act ₹0
Cost to the employer ₹25,00,000

Notes, section map and sources

Which Act applies

  • Financial year 2025-26 and earlier: the Income-tax Act, 1961.
  • Income from 1 April 2026 (Tax Year 2026-27) onwards: the Income-tax Act, 2025, which replaces the previous year and assessment year with the tax year.
  • Budget 2026 left the new regime slabs, the ₹75,000 standard deduction and the ₹12 lakh rebate unchanged.

Key points

  1. Gratuity is left out of the cost to company and of both columns.
  2. Provident fund is worked out on wages capped at ₹25,000 a month (the EPF wage ceiling, raised from ₹15,000 by S.O. 5109(E) from 17 September 2026). Choose full basic pay in the assumptions if the employer contributes on all of it.
  3. Basic pay and dearness allowance are half the cost to company, as the Code on Wages requires at least. Employer NPS (section 124(2), old 80CCD(2), up to 14% of basic) is the main way to structure pay under the new regime.
  4. Under section 58 (old 44ADA), half the gross receipts of a specified profession count as income, where receipts are up to ₹50 lakh, or ₹75 lakh where cash receipts are within 5%. Actual business expenses are then irrelevant and taken as nil.
  5. Above that ceiling, the contractor’s business expenses are used only to work out taxable income under the normal provisions. They are added back for take-home, so both columns stay on the same cash basis. Compliance costs (accounting, audit, GST filing, professional tax) are real cash and are taken off.
  6. Above the ceiling, books are required (section 62, old 44AA) and a tax audit applies (section 63, old 44AB). No audit is needed where income is declared under section 58(2), as section 63(2) provides.
  7. The standard deduction applies only to salary. Under the new regime an employee pays no tax on gross salary up to ₹12.75 lakh; a contractor in a qualifying profession under section 58 pays none on fees up to ₹24 lakh (half is ₹12 lakh, within the rebate).
  8. Surcharge of 10%, 15% and 25% above ₹50 lakh, ₹1 crore and ₹2 crore, with marginal relief; 4% cess on tax plus surcharge.
  9. Salary is not a supply for GST: services by an employee to an employer fall under Schedule III, paragraph 1 of the CGST Act.
  10. GST registration is mandatory once aggregate turnover passes ₹20 lakh (₹10 lakh in special category states), including for a supplier who only exports. Professional services are taxed at 18%.
  11. A client abroad: zero rated under a letter of undertaking if all the conditions of section 2(6) of the IGST Act are met (supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange or in rupees where the RBI permits, and not merely two establishments of one person).
  12. An Indian registered client with input tax credit recovers the 18% as credit, so it is a cash-flow item, not a cost.
  13. A client that is unregistered or whose credit is blocked (an exempt-supply business, or a credit blocked by section 17(5)) bears the 18% as a real cost.
  14. Composition for service providers (section 10(2A) of the CGST Act; Notification 2/2019-Central Tax (Rate)): 3% CGST and 3% SGST on turnover, paid by the contractor out of pocket. A bill of supply, no GST collected from the client, no credit for either side. Only within one state and up to ₹50 lakh of aggregate turnover in the preceding year; above that, the case falls back to the 18% case. Worth considering where the client cannot use the credit anyway.
  15. GST is not part of gross receipts for section 58.
  16. Not modelled: TDS on contractor fees (section 393, old 194J; cash flow only), the timing of advance tax (a single instalment by 15 March under section 58), the old regime, EDLI and administration charges, employer health cover and other benefits outside the cost to company, and leave encashment.
  17. A contractor who works like an employee (under the client’s control, on fixed hours, inside the organisation) risks being treated as one, and salary TDS (section 392, old 192) and the Labour Codes would then apply.

Section map

Where each provision sits in the 1961 and 2025 Acts
Provision 1961 Act 2025 Act
New tax regime rates 115BAC 202
Rebate (₹60,000 up to ₹12 lakh) 87A 156
Standard deduction, salary 16(ia) 19
Employer NPS deduction 80CCD(2) 124(2)
Deduction for LIC, PF and similar (old regime) 80C 123
Presumptive taxation, profession 44ADA 58 (Table, Sl. 3)
Presumptive taxation, business 44AD 58
Books of account 44AA 62
Tax audit 44AB 63
Advance tax instalments 211 408
TDS on salary 192 392
TDS on professional fees 194J 393
Return of income 139 263

Sources

An estimate for Tax Year 2026-27, not tax advice.

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