Tanvi has been a full-time personal finance journalist and now leads a multi-faceted existence as a wife & mum, and now a Certified Financial Planner and wine sommelier.

The Freelancer’s Guide to Filing Taxes

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Want to compute your tax as a freelancer? Here’s how…

Now that you’ve left your job and decided to go on your own, there are some changes you must embrace for!

To start with, your income may vary compared to a fixed salary that you were drawing earlier. There are no more employer contributions, and you must also foot your own expenses (business expenses).

Furthermore, there will be changes in the way you file your taxes. As a salaried employee, you could file the Form 16 and that would be enough. As a freelancer or a business person that you are now, you will be filing different tax forms!

Account for all of your income.

This is perhaps the simplest part. However, since there are no salary slips for you to go by, you can check all your receipts in your bank account to figure out the income that you have received from your assignments and your professional work. This income could be from your clients in India as well as abroad. You must add it all up.

Deductions are allowed.

Lucky you, there are several expenses that are allowed as deductions from your gross total income when you are a freelancer. Yes, this helps you save on taxes.

“These must be legitimate expenses which are incurred in pursuance of their profession,” says Suresh Sadagopan, Founder, Ladder7 Financial Services.

This could be rent on the property that you are working from, office expenses including a printer, conveyance expenses, your telephone or internet bill, entertainment expenses spent on acquiring or retaining a client, domain registration, or travel expenses that are within or outside of India.

You can even claim some amount of depreciation on the assets utilized towards your professional work. “If one has a vehicle and it is being used in getting the business, one could claim depreciation on the vehicle as well as the expenses incurred on maintenance and fuel,” adds Sadagopan.

So when you buy these assets, they are not adjusted towards expenses but are capitalized, and you can claim the depreciation thereon every year.

If you are a photographer, for instance, you can claim all the expenses related to developing and printing pictures as well as entertaining clients. You can also claim depreciation on the assets bought for the purpose of taking pictures, such as your camera, lenses, laptop, printers, etc.

Account for all your income from other sources as well.

This could be interest income from your savings account or fixed deposits. If you earn some rental income from any property, make sure to include it under the relevant heads. Now when you sum up all these heads, you will arrive at a figure which is your gross total income.

Claim Other deductions

Just like the salaried individuals and the business persons, freelancers can also claim a plethora of deductions/ tax exemptions when they file their income tax returns. “They can claim deduction under all sections like Section 80 C / 80 D / 80 E / 80 G etc,” says Kothari.

Which form should you fill?

As a freelancer you are eligible to fill ITR 4, which is for those carrying out business of a profession. So, once the above has been established, next is to arrive at your taxable income.

Add up all your receipts and determine your total income.

Subtract expenses directly related to your work.

Add income from other sources, like any rental income or fixed deposit interest.

Claim deductions under any of the 80 sections (mentioned above).

Find out the tax slab you belong to and calculate your tax due.

Remember to deduct TDS.

(If any of your clients have deducted TDS on payments made to you, you can take credit of this tax deducted from your final tax dues. You can also reduce TDS deducted by banks. Look up your Form 26AS to find out the details of TDS deducted and make sure these are all included in your return)

New form 4S.

“Now the more efficient tax filing process for professionals is to file through the Presumptive scheme of taxation,” says Gajendra Kothari, CEO and Founder of Etica Wealth Management.

Confused? Don’t be. We shall simplify this.

A new section has been inserted in the Income Tax Act Section 44ADA. This says that professionals with receipts of Rs. 50 lakhs or less could opt for the presumptive scheme.

Presumptive scheme of taxation means your taxable income is calculated on an assumption instead of actual basis. Actual basis is when you deduct business expenses from business income and pay tax on the balance.

“Your taxable income shall be assumed to be 50% of the gross receipts, there is no need to maintain accounting records and no expenses are allowed to be deducted”, says Kothari.

Furthermore, a short income tax return ITR-4S could be filed instead of the long form ITR 4.

“The scheme is bound to find immense popularity with consultants and freelancers who find it difficult to keep track of expenses and receipts”, says Kothari.

However, this scheme may not work for you are the one that can maintain your expenses, especially if they are more than 50% of your income and have no qualms in maintain those books of accounts.

Decide for yourself how sincere you want to be, in the quest to save on some tax!

Disclaimer: The views and opinions expressed in this article are for informational purposes only. The authors and publishers are not responsible or liable in any manner for any actions you might take relying on the contents of this article.


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