Tax-Saving Benefits for Freelancers

freelancer tax benefits

(This article was first published in The Economic Times.)

It’s tax season, and as the salaried hurry to meet the deadlines to submit proof of investments and claim benefits, for freelancers, the scenario is quite different.

Unlike salaried individuals, they don’t have employers to lay down rules and roll out facilities for them.

Freelancers can claim dual tax-saving benefits

Since they qualify for deductions applicable to both individuals and business owners.

Note: This is not an exhaustive list of tax-saving deductions.

However, while tax filing can be a hassle for freelancers, they also have certain advantages when it comes to benefits. As individuals, they can claim the Section 80 tax-saving deductions that are available to their salaried counterparts, and as freelancers, they can also claim the deductions available to business owners.

Most freelancers are aware of the Section 80 benefits they are eligible for as individual taxpayers, which include deductions on tax saving investments like NPS and PPF under Section 80C, deduction on house rent under 80GG, etc. But in addition to these, they can claim tax-saving deductions on their business expenses. If you are a freelancer, here’s how you can go about claiming these benefits:

Depreciation of assets

As a freelancer, the equipment you use for your work are your assets. These could include computer systems, laptops, cameras, etc. As these assets are used, their value depreciates. A small portion of the value of the asset can be claimed as a deduction from your taxable income every year. Even the vehicle you use to commute for work is an asset that you can claim depreciation on. The rate and method of depreciation varies across assets.

Office overheads

The expenses that you incur to run the everyday work-related activities count as overheads. These include expenses like telephone bills, internet bills, office supplies, etc. You can claim these expenditures as deductions while filing your tax returns. If you have purchased a website domain to showcase or discuss your work, you can claim deductions on that too.

Client meeting expenses

Freelance work often involves meeting clients at coffee shops or restaurants to discuss work. If you pay the bill, you can claim deductions on the expense. You can also claim tax-saving deductions on travel expenses incurred to meet your clients, including deductions on fuel expenses for your own vehicle and the fare for hired cabs, etc. Travelling expenses on outstation work trips can also be claimed.

Office rent

If you rent a desk at a coworking space, you can claim deduction on the amount you pay. If you work from a home you rent, you can claim part of the rent amount.

Contracting costs

For certain projects, you might have to enlist the services of another person or firm, and quote the charges for the same in your fees for the project. Such payments, which are made on a contractual basis, are also deductible. Keep in mind that you will need to present all relevant documents and bills of the expenses that you wish to claim deductions on.

Four taxes issues to keep in mind

While many freelancers are wary of delving into tax-related matters, here are four factors that they should remember:

Service tax registration

When the annual revenues of a freelancer exceeds Rs 10 lakh, they have to start adding service tax to their clients’ bills, at the current rate of 15%. They are also required to deposit the collected service tax with the government.

Advance tax payment

Salaried professionals pay advance tax by default in the form of TDS, but freelancers have to determine their advance tax liability themselves. To do this, they must estimate their annual income, subtracting business expenses and tax deductions, and if the figure they arrive at is higher than `10,000, pay advance tax each quarter, according to the applicable slab.

Presumptive income scheme

Presumptive income is calculated on the basis of assumption. Any freelancer who falls under the Section 44AA(1) list can take advantage of the scheme. If a freelancer’s total business-related expenses are less than half of their total income, under the scheme, only 50% of their annual income is taxable.

TDS deduction

If a freelancer hires contractors or other professionals to help with projects, TDS needs to be deducted on payments made to them if a single payment exceeds Rs 30,000, or the accumulated annual amount is over Rs 75,000. TDS has to be deposited with the government each month.

Due dates for advance tax

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