Freelancing is a great way to get out of the mundane 9 to 5 job life and to have more control over the money that you earn. For women, freelancing can give them the flexibility to work from home at flexible hours, while taking care of their kids and families. In spite of its many benefits, freelancing income is still liable to taxes.
The freelancers come under the category of self-employed in India, and their incomes come under the “Profits and Gains from Business or Profession”. So, if you earn income as a freelancer, you must file your taxes just like how a salaried person or a business owner does. Just like business owners and salaried people, freelancers can also reduce their tax liability, if they keep a few pointers in mind. Here are the top 10 smart tips to consider as a freelancer when filing your taxes.
1. Know your Total Income
The first step towards filing your tax returns is to gather and report all your different sources of income, as a freelancer. Remember that the Income Tax department of India treats your taxable income as the sum of all the receipts that you get as a return for your services in carrying out your profession.
Since you are an independent self-employed lady, you are not on the payroll of a company and not receiving any Provident Fund. Hence, your income is the aggregate of all those activities for which someone hired and paid you, in exchange for your manual or intellectual skills. These include payments received both in cash and via banking transactions. When you are collating all your income records, make sure you follow a consistent accounting method. One method of accounting is that you follow the invoice booking date, and the other is that you account for the actual income received.
2. Know your Tax Slab
Once you are sure about your income, you must know which tax bracket do you lie in and what is the tax liability for you. In India, regardless of your gender and nature of work, i.e. salaried, freelancer, or business professional, the tax slab is as shown below.
For women below 60 years of age:
|Annual Income (in INR)||Tax liability|
|Up to 250,000||Nil|
|250,001 to 500,000||5% of total income exceeding 250,000|
|500,001 to 1,000,000||12,500 + 20% of total income exceeding 500,000|
|Above 1,000,000||112,500 + 30% of total income exceeding 1,000,000|
Therefore, if your total freelancing income in a year is below INR 250,000, you need not file your income tax returns. If it is more than INR 250,000, then you need to file your taxes and try to reduce your tax liability. The next points will come in handy for you.
3. Reduce your Tax liability
Since you are reading this pointer, it says that your taxable income lies above the maximum amount that is not chargeable to income tax. Your goal, when you file your taxes, is to reduce your liability to the lowest allowable amount. You can also find out the most effective ways to get relief from back tax debts.
The Good news is that apart from the usual Section 80 deductions that are applicable for salaried individuals, as a freelancer, you can avail additional deductions in your taxable income that are specific to business owners. These deductions pertain to all the expenses incurred for the operation of your business or profession like office furniture, cab fares to visit clients or the cost of repairs done for your laptop or mobile. The key points to remember while stating these deductions are as follows.a. These expenses shall be solely for business purposes.b. They should occur within the fiscal year for which you are filing returns.c. The expense should not be a personal or capital expenditure.d. The expenditure should not be for any unlawful purpose.
Additionaly, as a woman, if your income is less than INR500,000 in a year, you get a tax rebate of INR2000 which means if your income if less than or equal to INR350,000, you do not pay any taxes.
4. Home office expenses
Since most women freelancers work from home, the Income Tax department allows you to claim deductions in the form of expenses for your home rent and cost of other utilities like phone, internet, printer, and electricity that you use for your freelancing work.
Legally, to claim this deduction, your home or property should be usable for freelancing work alone. If you are using any property for both personal and professional purpose, you should claim only a portion of that expense. For example, you may use your mobile phone for both personal and freelancing work. In that case, you cannot use the full postpaid bill as a tax deduction. Use a judicious percentage to report as a business expense.
5. Cost of Repairs for your Freelancing Assets
As a freelancing woman, your home, laptop, mobile, and even your car are assets if you use them for your business alone. Therefore, you can deduct from your taxable income any cost of repair done to your home, laptop, mobile phone, or car. The catch for claiming a home repair or any other repair as a deduction is that you should be owning that property.
6. Deduction owing to Depreciation
When you purchase a capital asset like a house or a laptop, its benefit is going to last for more than a year for your freelancing work. You are not charging their expense when you buy them. However, every year the value of that asset depreciates, and you can claim a percentage of the total cost of that asset as a deduction in the form of depreciation.
For example, a laptop costing INR 90,000, depreciates by 33.33% every year, then you are allowed to claim INR 30,000 as a tax deduction every year. You can find the type of asset and its depreciation rate listed in the Income Tax Act itself, and you should adhere to those only. So ladies, any furniture that you buy at your home, you can claim its depreciation value as an income tax deduction.
7. Certifications and Educational Expenses
Most of the freelancing work in India requires you to be constantly updated with the latest technologies. Any classes or certification courses that you take to enhance your business knowledge and boost your freelancing income, you can typically write off those costs. Similarly, women can claim any professional licensing costs related to your freelancing career as a tax deduction.
8. Travel, Meal, Hospitality and Entertainment costs
You can claim any kind of expenses related to business travel outside or within India, including both travel and accommodation charges. But ladies, you should not include your vacation costs as tax deduction. In addition, sometimes you may have to spend on meals or entertainment when you are in client meetings. These costs are also deductible from your taxable income calculations.
9. Section 80 benefits
As a freelancer lady, do not forget to take advantage of the general Section 80 tax benefits. Not all of them need to be expenses for you to claim deductions. Unlike a salaried employee, a freelancer in India will not have benefits like insurance and PF. Section 80C allows you to claim annual deductions maximum up to INR 150,000 on Life insurance, Sukanya Samriddhi Scheme (Special investment scheme for girl child), Investment in ELSS or Mutual Funds, or investment in Public Provident Fund. Section 80CCD allows you to invest in National Pension Scheme to avail additional deduction up to INR50, 000 a year.
Section 80D allows you to invest in health insurance for self, family, and parents up to a tune of INR75, 000 a year. Section 80E and Section 80EE help you avail tax deductions against the interest paid for education loan and home loan respectively. Women can get further benefits while applying for home loan starting from reduced stamp duty to lower interest rates. Additionally, if you are married, your husband and you should apply for a joint loan. In that case both of your can get tax deductions on home loan interest.
10. GST and Advance Tax Rules
If your annual turnover from freelancing work is above INR 2,000,000, you should also register for Goods and Services Tax (GST). Many women produce content on the internet for food, lifestyle or health related pages. For most of those services, 18% is the rate of GST that applies. You should charge your clients GST when you are invoicing. You have to file for GST returns also, afterward. If your income tax liability or GST return is more than INR 10,000 in a year, you will need to pay advance tax, which is a payment of income tax made quarterly. Check the GST rate online that is applicable for your freelancing service.
So, this year, keep these 10 pointers in mind, while filing your freelancing income tax returns. Avoid any delay in filing your income tax. Also, a freelancer, if working at the client site, is entitled to a work compensation in case of any unfortunate event like a fire, injury, etc. happens.They can consult a worker’s compensation lawyer for advice. Keep a good record of all your payment invoices and expense bills handy at the time of filing your return.
Many times, women freelancers follow the Accrual basis of Accounting, which is taking account of the invoice booking amount and not the actual income receiving date. In such cases, you may come across a situation, where you have to pay income tax even before you receive the current income. It puts added pressure on your savings. It is where you can make use of Section 44AD, which allows for reducing your taxable income by 50% for small taxpayers having an annual turnover of less than INR 10,000,000.
The catch is that you cannot use your expenses as further deductions. It is close, if not similar to the IRS tax relief. If you have any questions, do not hesitate to consult an experienced chartered accountant. Additionally, as a freelancer, do not forget to file your returns in the correct form “Form ITR-3”, on the Income Tax website. By linking your PAN card with AADHAAR card, you can make the return filing process smooth and entirely digital.