Tax Guide for Architects and Architectural practices

📐 Income Tax & GST Guide for Architects

As an architect running your own practice, freelancing, or offering consultancy, understanding your tax obligations is key to a smooth financial operation. Unlike salaried individuals, your income and expenses are treated differently under Indian tax laws. This guide will simplify the essentials for you.

1. Income Head: "Profits and Gains of Business or Profession"

The income you earn from your architectural practice – be it design fees, consultation charges, project management fees, or any other professional service – is taxed under the head "Profits and Gains of Business or Profession."

This specific category allows you to deduct all the legitimate expenses you incur to earn that income. Your tax is calculated on your net profit (your total fees minus your allowable professional expenses), not just your gross earnings.

2. Mandatory Books of Accounts (Section 44AA)

To keep track of your professional finances and for tax assessment, you might need to maintain specific records.

When it's mandatory: If your gross receipts (total income before expenses) from your architectural profession exceed ₹2.5 lakh in any of the three preceding financial years, or if you're a new practice and expect your gross receipts to exceed ₹2.5 lakh in the current year, then you must maintain proper books of accounts.

What to maintain:

• Cash Book: A daily record of all cash receipts and payments.

• Journal: If you follow the mercantile (accrual) system of accounting (recording income when earned and expenses when incurred, not just when cash changes hands).

• Ledger: A consolidated record of all your income and expense accounts.

• Copies of Bills/Invoices: Keep copies of all the bills you issue to your clients for your services.

• Receipts for Expenses: Get receipts for all professional expenses you make.

• Original Bills of Expenses: Store the original bills for all your professional purchases and expenses.

How long to keep them: These records should be meticulously kept for 6 years from the end of the relevant assessment year. Store them safely at your principal place of practice (your office or studio).

Why it's important: These records are your proof of income and expenses. They are crucial for accurate tax filing and essential if the Income Tax Department ever asks for verification.

3. Allowable Deductions: Reducing Your Taxable Income

This is a significant benefit for professionals. You can significantly lower your taxable income by deducting expenses that are incurred wholly and exclusively for your architectural profession. Essentially, if you spent money to help you design, plan, consult, or manage projects, it's likely a deductible expense.

Here are common examples of expenses you can claim:

• Office/Studio Expenses: Rent for your studio space, electricity bills, water bills, internet charges, telephone bills, and general maintenance of your professional premises. If you work from a dedicated space at home, a proportionate part of your household expenses can be claimed.

• Professional Software & Books: The cost of essential architectural software (like CAD, BIM, rendering software licenses), subscriptions to architectural magazines or journals, and professional reference books.

• Travel & Conveyance: Expenses for visiting project sites, client meetings, outstation projects, or attending architectural conferences. This includes fuel costs, public transport fares, and train or flight tickets.

• Staff Salaries: Payments made to your team members, such as junior architects, draftsmen, site supervisors, administrative staff, or interns. This also covers any employer's contribution to their Provident Fund (PF) or other employee benefits.

• Depreciation on Assets: When you buy assets for your practice that last a long time (e.g., high-end computers, plotters, drafting tables, office furniture, studio equipment, professional vehicles), you cannot deduct the full cost in the year of purchase. Instead, you claim a part of their value as "depreciation" each year. This non-cash expense gradually reduces your taxable profit over the asset's useful life.

• Printing & Stationery: Cost of drawing sheets, blueprints, project reports, official letterheads, business cards, and general office supplies.

• Professional Development & Fees: Fees paid for continuing education courses, workshops, seminars, or membership fees for professional bodies like the Council of Architecture (COA) or the Indian Institute of Architects (IIA).

• Insurance: Premiums paid for professional indemnity insurance or other business-related insurance.

• Marketing & Promotion: Expenses for advertising your services, maintaining a professional website, or participating in architectural exhibitions.

• Bank Charges: Any bank charges specifically related to your professional bank account.

What you generally cannot deduct:

• Personal Expenses: Any expense that is purely for your personal use or benefit (e.g., personal clothing, home renovations not related to your office space, personal vehicle maintenance not used for business).

• Capital Expenses: Money spent on acquiring assets that provide long-term benefits (like purchasing land or a new office building). While the full cost isn't deductible in one year, you can claim depreciation over time.

Key takeaway: Always keep clear and organized records (invoices, receipts, bank statements) for all your expenses. These serve as proof in case of a tax inquiry.

4. Presumptive Taxation Scheme (Section 44ADA): The Simple Route

For many architects, maintaining detailed accounts can be time-consuming. To ease this burden, the Income Tax Act introduced Presumptive Taxation under Section 44ADA.

Who is eligible?

• You must be a resident individual, a Hindu Undivided Family (HUF), or a partnership firm (excluding Limited Liability Partnerships - LLPs).

• Your total annual income (gross receipts) from your architectural profession should not exceed ₹75 lakh in the financial year.

• Architectural services are specifically listed as eligible professions.

How it works (The 50% Rule):

• If you opt for this scheme, you are not required to maintain detailed books of accounts (unless your actual profit is lower than 50% and your total income exceeds the basic exemption limit).

• You simply declare 50% of your total gross receipts as your taxable professional income. The law presumes that 50% is your profit, and the remaining 50% covers all your expenses.

• For example, if your total fees for the year are ₹40 lakh, you would declare ₹20 lakh (50% of ₹40 lakh) as your taxable professional income. You don't need to show individual expense receipts.

Benefits:

• Simplified Compliance: Less paperwork and accounting effort.

• No Audit Required: Generally, you don't need to get your accounts audited by a Chartered Accountant, which saves time and audit fees.

• Focus on Your Work: Spend more time on design and less on administrative tasks.

Important Note: If you declare a profit less than 50% of your gross receipts, and your total income is above the basic tax exemption limit, you will be required to maintain proper books of accounts and get them audited.

5. TDS on Your Fees (Section 194J)

When you receive payments for your architectural services, especially from businesses or government bodies, they might deduct "Tax Deducted at Source" (TDS) from your fees.

What is TDS? It's like an advance payment of your income tax. Your client deducts a portion of your fee directly at the source and deposits it with the government on your behalf. This advance tax payment is then credited against your final tax liability when you file your income tax return.

Who deducts it? Any person (other than an individual or HUF whose turnover does not exceed the tax audit limits) making payments for professional services. This usually includes companies, partnership firms, and other entities.

Applicability & Threshold: TDS under Section 194J applies if the total payments to you for professional architectural services exceed ₹50,000 in a financial year (this threshold is effective from April 1, 2025). If the payment is below this, no TDS is usually required.

TDS Rate: The standard TDS rate for professional services under Section 194J is 10%. Always provide your Permanent Account Number (PAN) to your client; otherwise, a 20% TDS might be deducted.

Form 16A: After TDS is deducted, your client will issue you a Form 16A certificate, which details the amount of TDS deducted and deposited against your PAN. Keep these forms safe as they are crucial to claim credit for the TDS when you file your Income Tax Return.

6. GST on Architectural Services

Architectural services are generally subject to Goods and Services Tax (GST) in India.

GST Rate: Architectural services fall under SAC Code 998321 (Architectural services, building design, planning and consultancy services) and attract an 18% GST rate.

GST Registration: You are required to register for GST if your aggregate annual turnover from taxable services exceeds ₹20 lakh (₹10 lakh for special category states like Northeastern states and Uttarakhand).

Forward Charge Mechanism (FCM): Unlike many legal services, architectural services generally operate under the Forward Charge Mechanism. This means that if you are a GST-registered architect providing services to a client (whether business or individual), you will charge GST on your invoice, collect it from the client, and then pay it to the government.

Input Tax Credit (ITC): A significant benefit of GST registration is the ability to claim Input Tax Credit. This means the GST you pay on your business expenses (like office rent, professional software, computers, stationery, consultation fees for other professionals, etc.) can be set off against the GST you collect from your clients, reducing your overall GST liability.

Invoicing & Returns: Once registered, you must issue proper GST-compliant invoices to your clients and file regular GST returns (e.g., GSTR-1 for sales, GSTR-3B for summary of liabilities) as per your turnover. An annual return (GSTR-9) is also usually required.

7. Income Tax Return (ITR) Form

The specific ITR form you'll use depends on your chosen method of taxation:

• ITR-4 (Sugam): You should file this form if you opt for the presumptive taxation scheme under Section 44ADA (declaring 50% of your gross receipts as income) and your gross receipts are within the ₹75 lakh limit.

• ITR-3: You will use this form if you maintain full books of accounts (not opting for 44ADA) and calculate your actual profits and losses. This form is also used if you have income from other sources like capital gains or more than one house property.

Important Note: Always cross-verify your income details with Form 26AS and Annual Information Statement (AIS) available on the Income Tax e-filing portal. These documents provide a comprehensive view of all tax-related transactions linked to your PAN, including TDS deducted, advance tax paid, and other financial transactions.

Key Considerations for Architects:

• Maintain Records: Regardless of whether you use the presumptive scheme or not, keeping meticulous records of your income and expenses is crucial for accurate tax filing and future reference.

• Choose Wisely: Evaluate whether the presumptive taxation scheme (44ADA) is beneficial for you based on your actual expenses and turnover.

• GST Compliance: Understand when you need to register for GST, how to charge it, and how to claim Input Tax Credit.

• Professional Guidance: Tax laws can be intricate and change frequently. It's highly recommended to consult with a qualified Chartered Accountant (CA). A CA can provide tailored advice, help you optimize your tax planning, ensure compliance with all tax laws (Income Tax and GST), and assist with filing your returns accurately and on time.

By staying informed and organized, you can navigate the tax landscape efficiently, allowing you to focus on creating remarkable architectural designs.