How ‘Tax –free’ is the Freelancer?


While the salaried hurry and submit papers on proof of investments for tax benefits before the deadline, freelancers have a different story to tell. The salaried have the employers communicate all the rules and roll out facilities that enable them file their taxes with ease. Freelancers do all the legwork when it comes to filing their taxes but enjoy comparatively higher benefits and advantages. In truth, Freelancers have the best of both the worlds.



Here’s how they claim the tax – saving deductions available to salaried individuals and the benefits available to business owners. A freelancer can avail the deductions under Sec 80C, and deduct expenses incurred for doing their work from the taxable income. Business expenses of the freelancer are also eligible for deduction thereby reducing their taxable income. The freelancer can also claim partial deduction if a certain expenditure is incurred for both professional and personal reasons.

Take a look at the list of eligible deductions for the Freelancer

Depreciation of Assets: Freelancers can claim depreciation on the assets used by them eg: Laptop, Phones, Cameras, vehicles they use to commute etc., The value of these assets depreciate every year and therefore a small part of the value of the asset can be claimed as a deduction from the taxable income. Maintenance costs incurred for these assets can also be claimed as a deduction.

Office Overheads: Any expense incurred in maintaining their office for example the purchase of a website domain for the purpose of showcasing work, or the purchase of software or platform required for discussions or remote meetings. These expenses can be claimed as a deduction while filing tax returns.

Office rent: Assuming that most freelancers work from home or from co-working spaces, any rent paid for the same can also be claimed as a deduction. If the freelancer works from a family home, a rental contract with the family member who owns the home can be entered into. The rent can be paid to them and you can avail the amount paid as rent as a tax deduction.

Client Meeting Expenses:Freelancers meet clients in coffee shops and restaurants. Payment made for the food and beverage expenses can be claimed as a tax deduction. Fare paid on hired taxi for meeting clients and fuel expenses on your own vehicle, expenses incurred in meeting clients out of station can also be claimed.

Contracting Costs: A Freelancer may also have the need for contracting another person or firm for the performance of a service. Such costs or fee paid to the contracted person or entity can also be claimed as a tax deduction. But this must have proper documentation as the fee you pay for this contracted person or entity must feature in the total fee quoted for the project.


Four Factors for the Freelancer to falter not:

Service Tax Registration: The freelancer is required to charge a service tax of 15% on their bills to the client. The Freelancer will have to register as a service provider when the annual revenue exceeds 9 lacs. However, the service tax is applicable only when the annual income exceeds 10lacs. Also it is mandatory that the freelancer deposits all the service tax so collected with the government.

Payment of Advance Tax: While salaried professionals pay advance tax as TDS, Freelancers have to estimate their amount of tax payable after deducting business expenses and eligible tax deductions. If this amount exceeds 10,000/-, freelancers must pay advance tax every quarter.

Presumptive Income Scheme: A Freelancer who falls under the Sec 44AA(1) scheme can make use of its benefits. If the freelancer’s total business expenditure is less than 50% of the income, then 50% of the income is exempt from tax under the presumptive income scheme. The remaining 50% which is taxable is also eligible for deductions under Sec 80C.

TDS Deduction: Hiring other freelancers or contracting personnel to help with projects, will require the freelancer to deduct TDS if the payments exceed INR 30,000/- or if the accumulated annual income exceeds INR 75000/-(2% of contracting firms and 1% for individual workers) and 10 % TDS for all other hired professionals if the payment exceeds INR 30,000/- This TDS has to be deposited with the government and the returns have to filed every quarter.

A quick round up of how the dual benefit tax structure of the Freelancer

As an Individual
Deductions allowed Amount
Home loan principal repayment, NPS, ELSS, PPF, Tax -saving FDs, Life Insurance Premium 150000
House rent Subject to annual income
Medical Insurance 30000
Interest repayment on Educational loan No Maximum Limit
Additional NPS Contribution 50000

As a Business Owner

Deductions allowed Amount
Depreciation of Assets As per applicable rate
Contracting Costs On Actuals
Business Expenses On Actuals
Office rent On Actuals
Meeting and Travel cost On Actuals

Source : Economic Times, Business Standard, Money Control.


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