Most of the Companies in India have already started hiring most of their employees on contract. Contract employee is an individual engaged in business to provide specific services based on the contract signed. These peoples are engaged for a particular time period after which their contract requires renewal.
Such contact employees are not liable to get all the benefits that normal employees on payroll are getting. For example contract employees will not be getting anything specifically for house rent allowance, leave travel allowance or any other allowance benefits that is applicable as per company’s policy. They will get their fixed sum as agreed at the time of contract. 
ITR forms applicable to contract employees
Based on the types of income and category of taxpayers, IT department has specified specific forms to be filled at the year end as income tax return. For contract employees ITR 4 will be applicable.
Incomes that are received from the contract are to be shown under the head income from business or profession and you will also be eligible to claim deduction for the expenses that you incurred to generate the income. Only those expenses that are incurred to generate income will be allowed as a deduction.
TDS for Contract employees
For normal regular employees, employer will be deducting income tax as per section 192 of IT act. Where as in the case of contract employees section 192 will not be applicable as these peoples are working based on a contract. TDS deduction will be based on the types of contract that is signed by you. If you are working like a commission agent then section 194H will be applicable, if your are providing consultancy services then section 194J will be applicable or else section 194D will be applicable.
Like in the case of regular employees, you cannot declare your IT deductions or loss from house property or any other types of income tax benefits to the company. However, all these income tax benefits can be claimed at the time of filling your It return. If you think that your income should be taxed at a lower rate then you need to apply to the assessing officer in form no 13 to get a certificate of lower deduction. Such certificate will be sent to your company with a copy to you. On the basis of such certificate the company will deduct lower tax while paying you.
TDS certificate for contract employees
Whatever TDS has been deducted, at every quarter end you will be receiving form 16A as a proof of TDS deduction towards your IT deduction proof. Based on from 16A you can file your income tax return. This TDS certificate works like a proof for the income tax that has been deducted from your receipts by the company. In future if your assessing officer asks for it then it has to be produced before him.
IT Deductions for contract employer
IT deductions as applicable to an individual will be applicable to you and you can claim deduction from your income. After taking out such deduction, your taxable income will be charged to income tax based on the slab rates that is applicable to the financial year.
In addition to the above IT provisions, each contract employee has to compulsorily maintain books of accounts as per the provisions of IT act. If their yearly receipt is more than 25 lakhs as a professional then they have to compulsorily do an IT audit under section 44AB of IT act.
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Contract employee income is to be considered as income from profession or Income from Business.
Is contact employ can file return under 44AD ?