In India, it is compulsory for every citizen to file tax if his annual income exceeds 2,50,000 per annum. So, whether you are a freelancer or a full-time employee you cannot escape from giving taxes to Indian Government. As per the tax slab of 2018-19, if any person’s total income is less than 2,50,000 then he or she is not required to pay any taxes. But persons whose annual income is in between 2,50,000 to 50000, he or she has to pay 5% of tax whereas if the annual income is more than 5,00,000 to 10,00,000 then it is compulsory for him or her to pay 20% of taxes.
Paying taxes for a salaried person is convenient as they get a fixed salary and everything remains fixed and usually gets Form 16 at the end of the year from the accounts department where he is working and filing tax for them is quite easy. But for a freelancer, it becomes a little tricky as they have to go for a list of tax forms and as have to file the tax without any professional.
Saving on Taxes for a freelancer
But as Indian Income tax act, there are certain deductions that freelancers can use to save his taxes. When it comes to tax deduction freelancers have some advantages. As an individual, they can claim the benefits of Section 80 Tax saving as well as they can also avail the deduction that is available to the business owners. Under Section 80, a freelancer can avail the benefits of saving deductions on various taxes saving investment such as NPS and PPF. They can also avail the benefit of deduction on house rent which comes under Section 80 GG. Apart from these basic deductions, there are some other benefits that Indian Income tax act allows to the freelancers. The following are some benefits that every freelancer can claim:
Depreciation of Asset:
The equipment that a freelancer uses for his work is his assets. These assets can be a computer, laptop, cameras, etc. Now it is obvious that when these assets will be used their value will depreciate. Indian Income tax act allows a freelancer to claim a small portion of the value of their asset as a deduction. However, the rate and method of depreciation of asset may vary. In case, a freelancer uses a car or any vehicle for his freelancing work it will also be considered as an asset and they can claim depreciation on that vehicle as well.
A freelancer has to incur some expense to run his day to day work activities. These expenses are regarded as an overhead which may include telephone bills, electricity bills, office supplies, etc. Indian Income tax act allows a freelancer to claim this expenditure while filing the tax returns. Apart from that as a freelancer if purchase a website domain for his work that expense can also be claimed during tax filing.
The expense for client meeting:
As a freelancer needs to hold meetings with clients for discussions on the works, it is seen that these meetings are usually held in restaurants and coffee houses. Apart from that, a freelancer may have to travel from one place to another for his freelancing work. Sometimes a freelancer needs to hire a cab to meet up their client. Indian Income tax act allows the freelancer to claim all these types of the expense that are incurred to meet the client and understand the work.
As a freelancer, you never own an office but it may sometime require renting a desk at a co-working space. This expense can also be included while filing a tax. A freelancer generally works from home but if their home is on rent then Indian Income tax act allows the freelancer to claim a part of their rent amount.
Cost for contracting:
A freelancer may have to enlist the service of his work to some other person or firm and they generally include their charge on their quotation. Such charges are included in the invoices but a freelancer can claim this amount while filing tax.
These are some vital points which every freelancer should remember to save on taxes.