Salaried individuals have an advantage over freelancers when it comes to filing taxes since the company sends them Form 16, which makes the process of income tax filing much more comfortable.
Filing income tax as a self-employed person whether you run a business or are a freelance consultant can be a lengthy process. You need to calculate income coming from several clients. Earnings may differ every month, depending on various factors. Here are a few things to keep in mind when filing tax when you are not salaried:
1. Know where you stand:As someone self-employed, you are hired by a company on an assignment or contract basis for your services. These can either be intellectual or manual. Your income is qualified as ‘profit and gains of business’ as seen from a tax perspective. You need to add up the amount paid by various clients to you in a financial year to arrive at your gross total income.
2. The right form:One of the important things to keep in mind when filing tax is choosing the ITR form that is right for you. This is where most people get confused and end up filling the wrong form. Depending on your income, you can either use ITR3 or ITR4 to file your taxes.
3. Tax deducted at source:As per Section 194J of the Income-tax Act, a deduction of 10% is made every time a payment is made to a professional. Also known as tax deducted at source (TDS), it applies whenever you receive a payment from a client. However, when you are filing income tax as a self-employed person, you have the right to claim a refund on the TDS deducted on your behalf. This benefit means that the tax is deposited back into your account whether you file your return offline or online.
4. Expenses to claim: Since your earnings are treated as business profits, you can also claim any expenditure made towards it when filing income tax as a self-employed person. This could reduce your tax burden. This includes rent paid towards office, food and entertainment bills for meetings with clients, cost of travelling and depreciation of electronic equipment, among others.
5. Personal spends:One of the things to keep in mind when filing tax as someone who does not receive a salary is that you can claim deduction only for professional expenses. Personal expenses such as rent paid towards the house, telephone bill, family vacation, medical treatment of self or family, maintenance of own vehicle etc. are not allowed.