How freelancers can save tax
Cleartax.in 20-07-2016 10:20:04 AM
Filing income tax returns for a freelancer is a complex process. Their salaried counterparts have it easy because of the Form 16 they receive and the TDS that is automatically deduced on their behalf. But freelancers have a lot more due diligence to do and aspects to take care of.
Hence, it is normal for freelancers to get nervous about filing their taxes. Because of lack of knowledge, they also miss out on a number of ways that they can use to save taxes. There are expenses related to work that freelancers can claim to pay less tax. Let’s take a look at these expenses:
- Workplace costs
The money that you pay for a place to work is a deductible expense. This could be the rent paid for a proper office. Even if you work from your own home or parent’s home, you can claim a reasonable portion of the expenses. Typically, this can be done by claiming the portion of rent paid to your parents as supported by an agreement. This rent can be claimed as your freelance business expense. In case you work from your own home, you can attribute a portion of the maintenance charges as freelance work expenses.
- Asset costs
Every freelancer uses equipment like a laptop, a computer, a printer, a mobile phone, etc for their work. Freelancers can claim depreciation on these assets. Depreciation means a part of the cost of owning and using the asset can be considered as an expense and deducted from the freelancer’s taxable income. This depreciation cost can be claimed every year till the cost of asset is exhausted.
- Daily costs
Freelancers should maintain a proper record of all expenses made for the day-to-day running of their work. These expenses can include electricity costs, telephone costs, interest costs, courier charges, commute charges, stationery costs and even meal and entertainment costs incurred on clients. If a proper record of these expenses is maintained in the form of receipts and invoices, the freelancer can claim them as deductible expenses.
- Travelling expenses
Business travel expenses can also be claimed as deductible expenses by freelancers.
- Subcontracting costs
Quite often, a freelancer has to employ another person to help with some aspect of their work. The payments that you make to such a person are deductible as subcontracting costs. Remember to deduct TDS on these payments when they go beyond the defined limits and this TDS has to be properly deposited by you.
Apart from these expenses that freelancers can claim, they can save and invest in Section 80C deductions of the India Income tax laws (“ITL”). These include investments like, PPF, ELSS funds, tax-saving fixed deposits, etc upto the overall limit prescribed under Section 80C of the ITL. Freelancers can also claim deductions on life insurance, medical insurance, children’s tuition fees, etc upto the overall limit prescribed under various sections of the ITL.