Are you a freelancer struggling to keep more of your hard-earned income? Look no further, as we bring you the best tips on how to save tax as a freelancer.
Dive in and discover actionable tips and strategies to help you save on taxes and optimize your finances along your freelancing journey.
How to Save Tax As a Freelancer: Don’t Miss Out These 15 Ways
As a freelancer in India, you can adopt the following strategies to save taxes effectively:
Deductions on Certain Investments
Freelancers can claim deductions for investments in specified instruments like the Public Provident Fund (PPF), National Savings Certificates (NSC), or Equity Linked Savings Schemes (ELSS) .
The maximum deduction you can claim is Rs1.5 lakh per annum.
Work Expenses
You can deduct expenses incurred for your business operations, provided these expenses are necessary and directly related to their work.
It’s essential to maintain proper documentation to substantiate these claims.
Here’s a list of common business expenses that can be claimed:
- Internet and Phone Bills
- Business travel expenses – transportation, accommodation, and meals
- Office supplies expenses like stationery, printer ink, etc.
- Costs for purchasing laptops, computers, and software licenses
- Repairs and maintenance costs
- Marketing and advertising costs
- Expenses for courses or workshops that enhance your freelance skills
- Insurance premiums for business-related insurance
- Client entertainment expenses for meals or entertainment
- Domain registration and hosting a professional website.
- Bank charges related to business bank accounts
- Any local taxes paid related to business operations
Hire a Professional
Engaging a tax consultant or a CA ensures that you take advantage of all available deductions and avoid costly mistakes.
Professionals like PKC Management Consulting can also guide you through complex tax regulations, saving both time and money.
Presumptive Taxation
Under Section 44ADA, freelancers can opt for presumptive taxation. This allows you to declare 50% of your gross receipts as income,
This simplifies tax compliance for freelancers and reduces the need for extensive bookkeeping.
Efficient TDS Record
Maintaining accurate records of tax deducted at source (TDS) is crucial to avoid double taxation.
Freelancers can claim refunds for excess TDS deducted by your clients when filing your return.
Claim Rent Paid
Under Section 80GG, freelancers who don’t receive HRA from their clients can claim deductions.
The limit for deduction on rent paid is up to Rs. 60,000 annually, provided certain conditions are met.
Health Insurance Premiums
Under Section 80D, you can claim deductions for health insurance premiums paid for yourself and your family.
The maximum deduction is Rs. 25,000 (Rs. 50,000 for senior citizens). It promotes health security while reducing taxable income.
Invest in NPS
Investing in the National Pension System (NPS) not only secures retirement funds but also offers tax benefits.
Contributions made to NPS are eligible for deductions under Section 80CCD, enhancing tax savings while building a retirement fund.
Depreciation of Capital Assets
Freelancers can claim depreciation on capital assets such as computers, laptops, and office furniture used for business purposes.
This allows them to deduct a portion of the asset’s cost each year, reflecting its decreasing value and ultimately lowering their taxable income over time.
Interest Earned on Savings Accounts
Freelancers can also claim deductions of up to Rs. 10,000 on interest earned from savings accounts.
This is applicable to individuals and Hindu Undivided Families, helping to reduce taxable income from interest earnings.
Timely GST Filing
If your income as a freelancer exceeds the threshold limit, you must register for Goods and Services Tax (GST).
Timely filing of GST returns not only avoids penalties but also allows for the input tax credit, which can reduce overall tax liability.
Tuition Fees
Deductions for tuition fees paid for children’s education can be claimed under Section 80C, which is subject to the overall limit of Rs.1.5 lakh.
This includes fees paid to any recognized educational institution in India.
Home Loan Interest
If you’re repaying a home loan, you can claim deductions on the interest paid under Section 24, helping you reduce your overall tax liability.
This deduction applies to interest on loans taken for purchasing or constructing a residential property, offering significant tax relief.
Disability Benefits
If you or a dependent has a disability, Section 80U and 80DD, depending on the severity of the disability.
If you or a dependent has a disability, Section 80U and 80DD allow deductions ranging from Rs. 75,000 to Rs. 1.25 lakh.
This deduction supports individuals with disabilities in managing their financial obligations.
Professional Fees Paid
Freelancers can claim deductions for professional fees paid to accountants, legal advisors, or consultants who assist in managing their business.
These fees are essential for ensuring compliance with tax regulations and optimizing financial strategies, thus reducing taxable income.
Frequently Asked Questions About Tax Saving for Freelancers
- Is there a minimum income threshold for freelancers to file income tax returns in India?
There is no minimum income threshold. Even if a freelancer’s income is below the basic exemption limit, you must still file a return if their total income includes any capital gains or other taxable sources.
- How to determine your taxable income as a freelancer?
Your taxable income as a freelancer is the total income you earned from freelancing minus any eligible deductions.
- Can I deduct my home office expenses as a freelancer?
Yes, you can deduct a portion of your home office expenses if you use a dedicated space for your business.
- How can freelancers claim deductions to reduce their taxable income?
Freelancers can claim deductions for expenses directly related to their business, such as office rent, travel expenses, internet costs, and professional fees.
- How much does it cost to hire a professional for tax services for a freelancer?
The cost will vary with your income level, the complexity of documentation and the overall scope. At PKC Management Consulting we promise value for money for all our taxation services.
