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Tax Rules For Self-Employed

Mr. C.S. Sudheer | Updated On Friday, April 20,2018, 08:15 PM
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Tax Rules For Self-Employed

 

It’s very difficult for salaried employees to escape tax. The reason….TDS….Its mandatory for your employer to deduct Tax at Source from your salary. The Income Tax Department is chasing salaried citizens who are evading tax, by artificially inflating tax deductions and tax exemptions or claiming false tax refunds.

But, small businesses are not subject to tax withholding. This helps many freelancers, small businesses, caterers, tutors and even artists, who earn taxable income, evade taxes. After GST, Tax evasion has become very difficult. So now, the self-employed have no choice but to learn tax rules and save tax.

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 misguided while buying any kind of financial products.

 

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Tax Rules For Self-Employed

 

1. Tax rules for freelancers

 

If you are a freelancer, you earn money by doing work for clients. These clients may be based in India or abroad. You simply go through your bank account statements, and add up all the receipts (money that has come to you). There are some expenses which you incur during freelancing, which are tax deductible. Take a look at some of them.

 

  • Mobile and internet bills
  • Rent you pay for shared office space.
  • Work related expenses like food and travel.
  • Laptops and computers you use are deductible.
  • Fees you pay for filing ITR on private platforms.
  • Conveyance expenses.

 

You subtract all these deductibles to calculate taxable income. You then use tax deductions to further reduce taxable income.

 

Freelancers get tax deductions

 

Freelancers can claim tax deductions just like salaried employees. You must keep bills/receipts very carefully. You can avail deductions under Section 80C, Section 80D and other Chapter V1-A deductions.

 

Section 44ADA: Presumptive tax for professionals

 

If you earn income from business/profession, you are required to maintain books of accounts. Your books must be audited if income from profession is more than Rs 50 Lakhs.

Under the presumptive income tax scheme, instead of claiming business expenses against the income you get (receipts), and then paying the balance, a certain % of receipts is directly taken as net income. You will have to pay tax on this income.

Freelancers like web designers/app developers who earn income up to Rs 50 Lakhs, opt for presumptive taxation under Section 44ADA, where 50% of receipts are taken as expenses. The remaining amount is considered business income and you file ITR and pay taxes

 

SEE ALSO: How Freelancers Can Save Tax?

 

2. Self-employed pay advance tax

 

If you are self-employed, you have to estimate income and check if there’s advance tax to pay. Advance tax has to be paid once each quarter. You have to pay advance tax once in June, September, December and March.

 

Check out the deadlines under advance tax:

 

 

Calculate advance tax

 

  • You must add up all the invoices which you have received from April 1st. You also include future payments that you would receive till March 31st, so that you can estimate taxable income.
  • You then deduct business expenses and Chapter V1-A deductions.
  • If your tax liability exceeds Rs 10,000 for the year, then you must pay the prescribed % of advance tax before the specified advanced tax deadlines.

 

SEE ALSO: How To Calculate Your Taxable Income?

 

3. Presumptive Taxation For Small Businesses

 

If your business has a turnover of Rs 2 Crores or less and you are not covered under Section 44ADA, then you are eligible and can opt for presumptive taxation method.

 

So why presumptive taxation?

 

  • Under presumptive taxation (Section 44AD), the net income is considered as 8% of business turnover in case of cash receipts and you have to pay tax on this income.
  • You have to file ITR using the Sugam ITR-4S.
  • From FY 2016-17 for the gross receipts which you have received through digital mode (cashless payments), the net income is estimated at 6% of gross receipts.

 

There’s no need to maintain accounting records or get accounting records audited. Be Wise, Get Rich.

 

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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