What is Professional Fees? | Meaning & Definition | Akrivia HCM

What are Professional Fees?

Professional fees refer to the charges or compensation that professionals receive for their expertise and services given to clients or customers. These professionals can include lawyers, accountants, doctors, consultants, and other service providers. These fees vary depending on the level of skill, experience, and the duration for which the services are provided.

Professional fee is also based on the industry, the specific services provided, the complexity of the services required, the professional’s reputation, and the geographic location. These fees can either be set by the professional or their firm, based on market rates, their level of expertise, and the value they provide to their clients.

Professional charges are usually negotiable, especially in cases of larger or ongoing projects. These fees can also be clubbed with other expenses incurred by a professional for travel or other out-of-pocket expenditure, which the client has agreed to reimburse.

Examples of professional charges include fees given to a doctor for a consultation or fees charged by an architect for creating design plans for a building.

What are the types of professional fees?

Some common types of professional fees consist of:

• Legal fees: These are charged by lawyers when clients require their services, for drafting contracts, representing them in court, or providing legal advice.
• Accounting fees: Charged by accountants, these fees are received in exchange for professional services, such as preparing financial statements, managing taxes, or providing financial advice.
• Consulting fees: These fees are charged by consultants for their services, such as providing advice on business strategy, marketing, or operations.
• Architectural fees: Architects also charge professional fees for services like designing buildings, renovations, or other structures.
• Engineering fees: These fees are also counted as professional fees as engineers charge it professional services, like designing and overseeing the construction of buildings, bridges, or other structures.

How are professional fees charged?

In addition to rates being determined according to industry, area, experience and nature of services, professional fees can also be charged along these lines:

• Hourly rates: Professionals can charge a specific amount per hour for the work they do.
• Retainers: Professionals can also charge clients a fixed fee upfront for a certain amount of time or a particular service.
• Project-based fees: These fees are agreed upon beforehand as a specific amount is decided to be paid for the entire project.
• Performance-based fees: This method determines a conditional fee. The quoted amount is only given upon achieving specific outcomes.

How can I use professional fees to save taxes?

There are a few ways to save tax on professional fees. Here are some of them:

• Presumptive taxation scheme: This scheme allows professionals earning above Rs.50 lakhs to declare 50% of their gross receipts as income and pay tax on the remaining 50%.
• Section 80C: Professionals can claim deductions under Section 80C, for expenses incurred for contributions towards EPF or PPF, premiums paid on life insurance policies, and tuition fees for children’s education.
• Tax-saving investments: Several investments, such as ELSS mutual funds, NSCs, and PPFs, offer tax exemption benefits.
• Corporate tax: Professional earning more than ₹50 lakhs, can form a company and avail of the benefits of corporate tax rates. Counting deductions and subsidies, corporate taxes are often less than personal income tax rates.

Are professional fees the same as salary?

No, professional fees and salary are not the same. Professional or technical fees are classified as income from business or profession and are charges as per services rendered. On the other hand, salary is considered income from employment, and is given according to a fixed pay cycle for as long as an individual serves as an employee of a particular organization.