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What are the top tax saving instruments for a freelancer?

Who is a freelancer?
A freelancer is not an employee on the company’s payroll. Freelancers are usually hired for specific projects for a specific period of time and paid accordingly. They do not enjoy employee perks and are not bound by employee rules either.

What is the tax for freelancers in India?
Tax for freelancers in India is charged at the same rate as that for employees. However, freelancers can avail the Presumptive Taxation Scheme. Freelancers with a yearly income below ₹50 lakh can declare only 50% of their income as taxable under the Presumptive Taxation Scheme.

What are the top tax saving instruments for a freelancer?

Tax-saving investments
Investments in the following tax-saving instruments are tax-deductible up to ₹1.5 lakh. 

  • PPF
  • NSC
  • Post Office Time Deposit 
  • Fixed Deposit
  • Tuition fees
  • Life Insurance
  • Investments in mutual funds

Medical insurance
The premium for medical insurance can be used for tax saving for freelancers. The maximum deduction that is allowed is ₹25,000, and ₹50,000 for senior citizens. An additional deduction of  ₹5,000 (aggregate) is available on Preventive Health Check for spouse, self, parents, and children.

Education Loan
The interest on an educational loan taken for the higher education of self or relative can be used for tax saving for freelancers. The loan should be taken from an approved charitable institution or from a financial institution. There is no higher limit for this kind of deduction. It can be availed for 8 years or until interest is fully paid off. 

Contribution to charitable organisations
These are some of the popular tax-saving instruments. Contributions to specific charities and relief funds are fully tax-deductible. 

Interest on deposits
Interest on savings accounts with a bank, post office, or cooperative society can be used to save tax for freelancers in India. The limit for deduction is  ₹10,000 and ₹50,000 for a senior citizen. 

Medical treatment for a disability
Expenses for medical treatment of a disability suffered by a freelancer or a dependent family member are eligible for tax deduction up to  ₹75,000. For severe disability, the limit is ₹1,25,000. 

Home loan interest
Home loan interest is a major instrument for tax saving for freelancers. It is deductible up to ₹2 lakhs in a year, ₹2.5 lakhs if you own only one house. 

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