The gig economy is rising in its contribution to GDP across the globe. As the structure of employment shifts to working for yourself rather than working for the company, we still have to ensure that taxes are paid on time and in full.
If you are unsure about what you can claim, deduct and expense before arriving at your tax payable figure, then here are three points to help you out.
1. Ensure that TDS is paid
As a freelancer, you are expected to raise an invoice for the work or service you provide and present this invoice to the entity you have contracted with. When they honour the invoice, ensure that the amount paid to you is net of TDS or tax deducted at source. The IT department ties in all your income and TDS by linking it to your PAN number.
This figure assumes relevance when your final income is computed at the end of the year and you have to arrive at the additional tax payable or refund due.
If you estimate that your annual tax payable after adjusting for TDS is going to be more than Rs 10,000, then you also need to pay Advance Tax, equal to that amount. This must be paid before the 15th of March in a given financial year. Failure to do so can lead to penalties.
2. Expenses can be deducted
Did you know that you can deduct expenses from your freelancing income? These expenses need to be directly related to your work. For example, rent, travel expenses, office expenses and so on, can all get deducted from your income before you calculate the tax payable. In today’s context, you can deduct membership paid at a co-working space as well and even your driver’s salary from your income.
3. Tax saving under 80 C
Deductions under this section remain the same as for a corporate employee. The difference is, there is no employees provident fund amount which can get deducted under this section. However, all other eligible deductions like equity-linked savings schemes, public provident fund contribution, life insurance premium, the amount paid as school fees for your children etc, can all get deducted. You are also allowed to deduct medical insurance premium from your taxable income. Post the deductions, what’s left is your taxable income.
These are the three basic things you need to be careful about if you are an individual with freelance income. Any other income that you earn, like rental income, will get added to your overall taxable income before calculating tax liability. Income from capital gains remains separate.
Knowing the taxation rules impacting your income is crucial to ensuring overall tax efficiency for your income.