How Freelancers Can Save Tax?

In life there is no greater joy than being your own boss. No boss shouting….Why are you late? Why is your work not finished? No handling multiple projects if you don’t want to. You work at comfortable hours, doing things you really like. Then…there are no night shifts.

If you are a salaried employee, you have your employer or HR, asking you to hurry up and submit proof of investments and receipts, to claim tax exemptions and deductions. Your employer helps you or gives you facilities to make this hassle free. But, if you are a freelancer, you have no employer to help you claim tax exemptions and deductions.

But, this is not a problem. After all you are a freelancer. You can handle this. There’s more…As a freelancer you not only enjoy Section 80 tax saving deductions, you can also claim deductions enjoyed by business owners.

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Freelancer’s can claim tax benefits of a business owner

Depreciation of assets

You use a laptop, printer, smart phone or a work desk to run your blog, called the assets of the business. These assets have a life span of more than a year and can be used for many years. Out of the value of the asset, a small portion can be claimed as a deduction on your taxable income each year. What rate and how depreciation is calculated, depends on the type of asset.

Business and office expenses

You incur expenses to run your office. You have telephone/mobile bills, internet bills or expenses for office supplies. You also have expenses for hiring freelance writers, hosting/domain fees and programmer fees. All these are business and office expenses on which you can claim deductions.

Travel and client meeting expenses

You might have to travel to meet a client. You might use your car or a cab, on which you pay cab charges, or petrol charges for your own car. You might meet the client at a hotel for which you have to pay the bill. You might even have to travel outstation and stay in a hotel to meet a client. You can claim all these expenses as a tax deduction for travel/client meeting expenses.

Office rent expenses

You might have to rent an office or take up co-working space. You are allowed to deduct office rent expenses.

Contracting expenses

You work on a project for which you have to enlist the services of another person or a firm. You can claim a deduction on the payments you have made, after presenting the relevant bills of the expenses incurred.

Freelancer’s can claim individual tax benefits

You have Section 80C deductions

You can invest in certain tax saving investments up to INR 1.5 Lakhs a year, under Section 80C and enjoy a tax deduction. Some of these tax saving instruments are PPF, ELSS, NSC, Tax saver fixed deposits, EPF, NPS, home loan principal repayment, premium paid on life insurance plans and so on.

You enjoy an additional deduction for NPS

You enjoy a tax deduction of INR 50,000, under Section 80CCD(1b) of the income tax act on your voluntary contribution to the NPS.

Deductions for house rent

Salaried employees generally receive a house rent allowance (HRA) from employer, as part of their salary package, if they are staying in a rented house. If you are a freelancer, your salary does not include HRA, but you can still claim a deduction under Section 80GG.

Deduction under Section 80GG is least of the following:

• Rent paid minus 10% of total income.
• 25% of total income of the taxpayer for the year.
• INR 5000 a month.

Yes, you can claim HRA under Section 80GG where the least of the above is allowed as deduction from total income.

Deductions for health insurance

You get a deduction for the premium payments made towards a health/medical insurance plan, paid for you, your family or your parents, under Section 80D. Deduction towards the health insurance premium can be claimed up to INR 25,000. If either of the parents are senior citizens this limit is INR 30,000.

Being a Freelancer means twin tax benefits. You enjoy Section 80 benefits and also business deductions. Be Wise, Get Rich.