Tips on Tax Saving for Freelancers

Unlike the salaried, tax return for a freelancer is complex. Therefore, it's normal to get a bit anxious about taxes and savings when you are running the show yourself. Being aware about what you can claim and how to go about it can save you some tax. One of the significant differences between a salaried return and a freelancer's return is that expenses related to your work can be deducted from your freelancing income. Here are some of the expenses you can claim.

Cost of your workspace - is a deductible expense. If you work from a proper office space, rent paid by you, expenses towards its maintenance can be deducted from your freelancing income. If you have not taken up a formal space, and work from your homeor your parent's home, you are allowed to claim a reasonable portion of expenses towards your freelancing work. You can enter into an agreement with your parents and pay them rent, and claim this rent as your business expense. If you work out of your own house, you can attribute a portion of maintenance expenses to your freelancing work.

Cost of assets used- A laptop or a printer or a mobile phone may be required for your work. Depreciation is allowed to be claimed for such assets. Depreciation means a part of the cost of the asset is considered as expense and it can be deducted from your freelancing income. Depreciation can be claimed every year, until the cost of the asset is fully exhausted. This is applicable to assets such as a laptop, printers, desks etc.

Day to day expenses - As a freelancer it helps to maintain a proper record of all the expenses you incur for day to day running of your work. Electricity expenses, telephone costs, internet expenses, courier charges, printer sheets, petrol expenses on travel to meet clients or cab expenses, meal expenses for client meetings are all deductible. Keep a record of your expenses and avoid making payments in cash, since any payment in excess of Rs 20,000 made in cash is not allowed to be deducted. Maintaina proper record of receipts and invoices paid by you.

Cost of subcontracting - You may have to engage another person to help you with your work, any payments made by you to such a person is also deductible. Do remember to deduct TDS if you are paying a salary. TDS deducted by you must also be duly deposited to the tax department.

How to save and where to invest - While you benefit from the freedom and flexibility freelancing brings, a major pitfall is not having mandatory EPF contributions. In case of salaried, deductions towards EPF are made from monthly salary and employer makes a matching contribution. Without much effort, a corpus is built as your EPF balance. Besides a job entitles you to gratuity, leave encashment etc. As a freelancer, you need to save & invest towards these yourself. Consider PPF or public provident fund; it is a risk free investment, though the returns are mediocre. If you are ready for some risk, choose an ELSS fund and start a monthly SIP and stay committed for the longer term. PPF and ELSS investment are eligible for deduction from your total income under section 80C.

You can open a National Pension System (NPS) account and deposit Rs 50,000 or more annually. This way you can claim tax benefit under section 80CCD(1B) of up to Rs 50,000 and also start contributing towards your pension. Since you do not have a medical insurance via employer, purchasing health insurance is important. Cover your family and parents and claim deduction on insurance premium up to Rs 55,000 under section 80D.

Making these investments and expenses can reduce your taxable income by Rs 2lakhs or more, besides helping you prepare for the long road ahead.