Income tax rules for a consultant or freelancer are slightly different from the income tax rules for a salaried individual. There are a few deductions which are available to the salaried person which cannot be claimed by someone who is working as a freelancer. But freelancers are allowed to claim their actual expenses done with connection to work. There is no difference in the income tax rates at which a freelancer or a consultant is taxed. The same income tax rates are applicable to a freelancer or a consultant as to a salaried individual.
Here are the five key points that explain income tax rules for a freelancer.
- Income as a consultant is taxed under the head “Profits and Business or Profession”.
- Freelancers cannot claim the standard deduction of ₹50,000 as applicable to a salaried individual. “As a salaried person you are allowed to claim upto ₹50,000 as standard deduction to take care of expenses incurred by you against your salary income without having to submit any documentary evidence. There is no similar provision for claiming a standard deduction for a consultant against income received from free lancing,” says Balwant Jain, Chief Editor, ApnaPaisa
- Consultants can claim work-related expenditure incurred on actual basis. They are not allowed to claim any expenses which is personal in nature. “These will broadly include expenses like internet expenses, mobile expenses, printing and stationery, conveyance expenses etc. to the extent these are attributable to the activity as consultant after removing component of personal use if any,” says Balwant Jain.
- Consultants can claim very small portion of house rent (if rented) and electricity expenses in respect of the house. Freelancers or consultants can claim depreciation on computer and printer used for their work. Balwant Jain explains that in addition to the depreciation, they can also claim expenses incurred on repairs and maintenance of computer and printer.
- Deductions under Section 80C, 80CCD, 80D, 80TTA etc are available to individuals working as a consultant or a freelancer. “In case you are staying in a rented place you can claim the same under section 80GG upto ₹5,000 per month,” says Balwant Jain. The net income arrived at is taxed at the applicable slab rate. However some capital gains are taxed at a flat rate.