HAVE YOU QUIT YOUR JOB TO BE A FREELANCER? HERE ARE SOME TAX TIPS

Cleartax.in | Updated: Jul 10, 2016 11:48 IST

Story Highlights

• Freelancers can claim deductions of certain expenses that they make
• Freelancers can also claim all Section 80 deductions
• They however have to pay advance tax

As compared to a few years ago, today there are a lot more opportunities available for freelancers in different fields. Many companies are also now accepting freelancers in their workflow and assigning specific tasks to them. It is because of these opportunities that Kritika decided to quit her job as a graphic designer and started to take up assignments on a freelance basis.

Kritika left her salaried job in October 2015 and started working as a freelancer. Things have been going well for her – she’s good at designing and manages to get enough freelance assignments. But she’s now in a bit of a quandary. She doesn’t know how to file her income tax returns for FY2015-16. Kritika has her Form 16 from her employer for the period between April 2015 and October 2015. But after that, till March 2016, all her income has been freelance income.

For all first-time freelancers like Kritika, this is how you should e-file your income tax returns for assessment year 2016-17.

Expenses freelancers can claim
One big advantage that freelancers have over salary earners is that they can claim deductions of certain expenses that they make. Since freelancing is like running a business, certain expenses that you make towards finding work and doing work can be excluded from your taxable income. These expenses include:

– Depreciation on computers as per rates sent in the Income Tax Act
– Advertising, promotional and printing expenses
– Telephone and internet bills
– Rent for individual or shared office space
– Work-related meal and travel expenses
– Fees paid for professional associations and business subscriptions
– Fees for filing income tax return

Whatever gross income you earn from your freelance work can be lessened by claiming these expenses. The net income that you then arrive at will be your taxable income. To this, you should also add your salary income and income from other sources like fixed deposit interest, savings bank interest etc that have been earned during the financial year.

Freelancers can also claim all the Section 80 deductions that are available to salaried individuals. These include your ELSS fund investments, PPF contributions, life insurance policy premiums as well as medical insurance for yourself and your family under Section 80D.

Gross income of freelancers
To arrive at how much income you’ve earned from your freelance work, you should look at your invoices and receipts. Your bank account statement can also help you in adding up your income from different freelance assignments that you have taken up. The income tax slabs will apply to your net income, which is after deduction of business expenses and tax-saving investments that you make. If your clients have deducted TDS on the payments made to you, you can take credit for it from your final tax dues as well.

Advance tax for freelancers
There is another aspect of taxation that freelancers have to look at, which salary earners don’t have to be bothered with – advance tax – if your total tax liability exceeds Rs 10,000 or more in a financial year. Advance tax means paying income tax at regular intervals to the tax department, rather than in a lump sum at the end of the year. You will have to estimate your income and expenses to figure out if paying advance tax applies to you or not.

This is how someone like Kritika, who started to work as a freelancer from the last financial year, should approach their tax returns. It is not easy for first-time freelancers to tackle income tax returns, but it can be done easily with a little bit of understanding.

Disclaimer: All information in this article has been provided by Cleartax.in and NaijaLodge Profit is not responsible for the accuracy and completeness of the same.

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