Prime Minister Narendra Modi has said that his Government is nurturing youngsters to be job creators and not job-seekers. More than 1.5 crore citizens have heard the Prime Ministers message and are living the freelance life. Freelancers have a fluctuating income unlike salaried employees. So, freelancers need to do efficient tax planning to save taxes.
Let's take a look at how freelancers can save on taxes. Want to know more on tax planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
Let's first understand what is freelancing income. If you get income from a profession which involves work and requires you to use a skill, (this skill can be intellectual or manual), then such an income will be taxed under the head, " Profits and gains of Business and Profession." Your income is the total amount you get for the work you do for all your clients based in India or abroad.
Remember: You need to keep receipts/bills of all expenses which can be claimed for deductions.
SEE ALSO: Income tax benefits under Section 80C
Freelancers get Section 80C deductions: If you or any freelancer invests in PPF, ELSS, Tax saving FD, NPS or Post Office Saving Schemes, repayment of the Principal part of the home loan (Home Loan EMI Principal) and premiums paid on life insurance plans, these qualify for deductions under Section 80C of the income tax act up to INR 1.5 Lakhs a year.
Freelancers get Section 80CCC deductions: If you pay an amount towards an annuity plan or a pension fund, you get a deduction up to INR 50,000 a year.
The combined maximum limit for section 80C, 80CCC and sec 80CCD (1) deduction is INR 1,50,000.
Freelancers get Section 80D deductions: A freelancer can claim tax deduction under Section 80D for health insurance premiums paid for self/family/spouse up to INR 25,000 a year. It goes up to INR 30,000 a year for freelance senior citizens or even your parents who are above 60.
Freelancers get Section 80GG deductions: Freelancers who pay house rent, can use the Section 80GG tax deductions, provided he/she does not own a self occupied residential property. The tax deduction is the least of:
1. Rent paid - 10% of total income
2. INR 5000 a month
3. 25% of total income.
Remember: There are several more tax deductions available, but we will discuss this at a later time.
SEE ALSO: Income tax benefits of being married
If you or any freelancer has income (turnover) up to INR 50 Lakhs in a financial year, you are allowed to avail the benefits under the presumptive income scheme under Section 44ADA. You can claim 50% of your total receipts as a business expense, without the need to maintain any books of accounts.
If you are a freelancer, this article has taught you how to save taxes. Tax planning for freelancers is just like salaried employees. It's not difficult if you pay attention to tax planning. Be Wise, Get Rich.
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