16 Nov

How Freelancers Consultants Can Save Taxes While Filling ITR

How Freelancers, Consultants Can Save Taxes While Filling ITR

Even freelancers and consultants can avail of tax benefits and save taxes when filing income tax returns. Here's how to do it.

Filing an Income Tax Return: The income earned by a freelancer is taxable as profit and gains from the business or profession.

India is moving towards becoming a gig economy, where temporary, flexible jobs are common and companies tend to hire independent contractors and freelancers instead of full-time employees.

A freelancer is not a salaried company employee. Freelancing income is earned when assigned to a specific assignment for a specific period of time, where the payment is received upon completion and submission. Any income earned by demonstrating intellectual or manual skills is considered business income and is taxable under the Income Tax Act as "Profit and Gains from Business or profession".


Anyone paying a freelancer above Rs 30,000 is required to deduct income tax. The current rate of a tax deduction on total income is 10%. The professional body will also issue a Form 16A detailing the tax thus deducted.

For example, a finance professional will be paid Rs.1,00,000 by a professional body. In such a case, the business entity will pay Rs 10,000 to the income tax department and the remaining Rs 90,000 to the business itself.

Expenditure permitted for the calculation of 'business or profession under profits and gains'

The income earned by the freelancer is taxable as profit and gains from the business or professions. Therefore, unlike salaried employees, a freelancer is also entitled to claim a tax deduction for expenses incurred for the execution of the work.

Legally, such expenses should be related to the work done by the freelancer and should not be in the form of capital expenditure or personal expenses. When calculating taxable income, tax deductions can be claimed on various expenses such as rent, repairs, depreciation, office expenses, travel expenses, meals, entertainment, hospitality expenses, local taxes, software expenses, website expenses and insurance.

It is legal to claim such expenses, and every business has a right to do so, which will have a direct effect on the immediate reduction of taxes. In some cases, tax deductions can increase up to 30% of the total cost.

Tax deduction for investment

Up to Rs 150,000 deduction can be claimed for National Savings Certificate, Public Provident Fund, Term Deposit, Post Office Time Deposit Account, Life Insurance, School, College, University tuition fee payment, investment in UTI units or investment in Mutual. Funding

Tax deductions for medical insurance

The deduction can be claimed by a freelancer in respect of medical insurance paid for premium. The maximum deduction allowed under this provision is Rs. 25,000 (Rs. 50,000 in the case of senior citizens). Additional deductions for preventive health check-ups also amount to a total of Rs. Up to 5,000 is available.

Tax deductions for educational loans

Where a freelancer has taken a loan from a financial institution or a recognized charity for the purpose of his / her higher education or the higher education of his / her relatives, deduction in respect of interest paid by such person will be allowed. This deduction is allowed for 8 financial years or till the full interest is paid. There is no limit to the deductions allowed under this provision.

Tax deductions for contributions of charities

Contributions made to specific aid funds and charities can be claimed as a total deduction from taxable income. Whether it is the floods in Kerala, the Pulwama attack, the Prime Minister's Relief Fund or any other social cause, business people should sit quietly and consider the social contributions they have made throughout the year. All such contributions to the notified institutions will help them to reduce taxes for the year.

Tax deduction for interest

Interest (no time deposit) on savings account deposits in a banking company, co-operative society or post office will be allowed as a tax deduction. It has a general limit of Rs 10,000 for individuals (Rs 50,000 for senior citizens). This is a provision that can be used by each freelancer to reduce their taxable income up to Rs. 10,000.

Deduction for medical treatment in case of disability

Freelancer for medical treatment (including nursing), training and rehabilitation due to one's own disability or disability of a dependent family member, Rs. 75,000 and in case of severe disability Can claim a deduction of up to Rs 125,000. Gross income.

Deduction for interest on home loan

The Government of India has always shown a strong tendency to encourage citizens to invest in the home. A person who earns Up to Rs 2,00,000 is eligible for deduction in respect of interest paid on home loans. This deduction is eligible for self-occupying and abandoned property. An additional tax benefit of Rs. 50,000 can be availed if a person owns only one house or property. Therefore, a total of Rs 250,000 is available as a deduction for interest on the home loan.

Presumptive Taxation Scheme

Any designated freelancer with an income of less than Rs 50 lakh can avail of this scheme, through which he can choose to declare only 50% of his annual income as taxable income. This provision will halve the tax and compliance burden on freelancers.

Thus, a freelancer can also avail of income tax benefits and save tax while filing income tax returns. He just needs to have some knowledge of the tax plans included in the law.


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