Freelancer tax rules

Freelancing has emerged over the past few years as a significant source of income for many across India. The significant advantage that the freelance sector has is the benefit of earning regardless of an individual’s age. With the evolution of technology and a plethora of opportunities, various talented freelancers across the country have chosen to make a living from their comfortable space. The term “freelance” generally refers to an individual who is self-employed. This includes people who are medical/ legal/ engineering based bloggers, consultants, photographers, tutors, and interior and fashion designers to name a few. This article aims to be a guide and simplify Income Tax for Freelancers in India.

Deductions in Freelancing Income

Certain expenses incur while a freelancer does the work that they have taken up. These expenses may be deducted from their income. However, these expenses must be directly related to the work that they carry out. These expenses may come in any form starting from office furniture to cab fares to visit clients. The specific conditions that have to be fulfilled to claim these expenses as a reduction in the revenue generated by a freelancer have been mentioned above. Below are the expenses that may be claimed as a deduction against a freelancer’s income.

All expenses incurred during the travel of a freelancer for work-related purposes; for example, to meet a client within the country or anywhere, could be included as a deduction.

When a freelancer purchases a capital asset, the benefit of the asset is generally expected to last for more than a year. Assets such as these are capitalized and not charged as an expense when they are purchased initially. However, a small portion of its cost is expensed every year and is permitted to be deducted as an expense from the freelancer’s income. This expense that is charged yearly is known as depreciation. Under the Income Tax Act, amortization of any of the freelancer’s assets may be claimed for a deduction. However, the rate of depreciation would depend on the schedule published by the concerned tax authority. A schedule is issued to keep the prices in line with inflation with the changes occurring every year. It should be noted that the type of assets, depreciation methods and standards of depreciation that is to be charged would be laid down by the Income Tax Act.

Expenses such as telephone bills, internet bills, office supplies, printing documents and much more could be included as a deduction.

These are the expenses incurred by a freelancer when they invite a client over for a meal to discuss the work or to retain the business. These expenses can be considered as tax deductible.

Any expenses that a freelancer incurs while paying local taxes and the insurance for their business can also be counted as eligible for deduction. Software purchases to be used in the business for its development could also be included as a reduction in taxes.