Business or Professional - Which category to file taxes ?

I have stayed in US from August 2000 to January 2007. Since Feb 2007, I am now woking full time

(more than 40 hrs/week) for a US based company on contract basis. I receive fixed monthly fee

in US dollars through wire transfer (conversion rate applied on the day of receipt). For

finalcial year 2006-07, I filed my taxes as a Professional.

I have done B.Tech in COmputer Engineering, and Masters of Computer Science.

Now for Financial year 2007-08, my receipts are more than 10 lacs. I am not able to understand

under which category should I file my taxes; i.e. Business or profession.

Here are some facts:

I am a sole proprietor, and I have hired few employees under a Business Name. Their income is

less than the Taxable limit, so I have not deducted the TDS yet. But I have also get some work

done on contract basis which amounts to more than 1.25 lacs. I consulted a CA and I was told

that if the contract work is more than Rs.20,000, then I am liable for TDS deduction from the

next financial year (I am exempt for the first year). But he also told that if I file under

Professional category, then only I shoudl worry ablout TDS from next year. But if I file under

Business, I should not worry as the limit for Business for AUDIT and TDS libalityis 40 lacs,

and my receipts are less than 40 lacs.

As far as the nature of my US contract is concerned, following are the facts:

1) I develop and support a product of a US company.
2) I do not own the intellectual property rights of the work I do for the company.
3) I am paid a fixed monthly fee for my product development and support services
4) The contract ie between the US comapany and ME.
5) I work under supervision of the US comapny.
6) The work is done on Servers sitting in US and india.
7) The work is 100% exported.

HEre is my delimma. I am sure that if I register my company, then I'll fall under the BUsiness

category (40 lacs AUDIT and TDS libality). But since I am a sole proprietor, should this be a

profession or a Business. All the CA's I have consulted advised me to file under Profession.
1)But I fail to understand just because I have an engineering degree and I am a sole

proprietor, why would I come under professional category?
2)Also, if I sign the future contact in the name of my Propertier company, would it help to

file under Business category.

Please advise?

In my view you can say this is my business income. There is nothing wrong in it. The Income tax department is not going to lose any thing in both the ways. If your income is taken as professional income or income from Business, you are the only owner in both. The tax is same except the Audit and TDS matters. That too your income is coming from out side and 100% trusted one.

If you show the income as professional income, then your case will be a Audit case and you have to slightly pay more fee to C.A., Regarding TDS, it is not much difficult. But you need some one to look after and it involves some amount to you.

If I am in your pogition I will opt it as Business Income.