One of the best ways to save tax is to know the right thing to do and proceed accordingly. There could be a number of ways to save tax as a freelancer. Here are the most important and common things you must consider if you are working as a freelancer in India.
Use presumptive taxation scheme
Presumptive taxation scheme has been made available to professionals listed under Section 44ADA. This scheme will presume your income to be 50% of your gross receipts, thus you would not have to claim any further business expenses while using this scheme.
This scheme is available for professionals having gross receipts up to Rs 50 lakh. Apart from presuming your income, this scheme also waives the need to maintain any books of accounts.
Report business income
Freelancing income can be considered as your business income and this will have its own merits. Often the freelancers earn revenue and consider the revenue as their income, while they must have incurred expenses to provide the services they are engaged in. Having business as a source of your income, one would be able to deduct the expenses.
Most common expenses could be: depreciation on assets, office overheads, office rent, client meeting expenses, contracting costs, etc. Important thing to note here is that personal expenses cannot be claimed while computing the freelancing income.
One can either use one of the above two reporting under income tax. So, it is pertinent to determine which one would be beneficial for your freelance business.
Invest the right way
One of the most important steps towards saving tax is investing right, this will not only help you save tax, you will also have some portion of your money saved as investments. Various deductions, the most popular being under Sections 80C, 80D, 80CCD, 80GG, etc.
Check if GST registration is needed
Apart from saving taxes under income tax, a freelancer must also determine if she is required to get the business registered under GST. This should be done proactively, to avoid any late fees or interest.
One of the important ways to save money while filing taxes is to file correctly and to file in time. Doing so, you will save unnecessary costs in the form of interest and penalties. Take care to use the correct ITR form, pay advance taxes, if applicable, consider all sources of income and calculate accurately, use TDS credits appropriately, claim proper deductions and determine if tax audit is applicable.
The most important thing is to find the right mix. A lot will depend upon various other factors such as other income sources, eligibility of deductions, applicability of tax audit, importance of book-keeping for the freelancer, etc.