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When you earn ‘Income’ from self employment, from any profession or work, which requires you to use a skill, which may be intellectual or manual skill, such income will be taxable under the head ‘ Profits & Gains of Business & Profession’.
Unless you are earning a professional income, which is part of an employment agreement, any income you earn by pursuing your profession skills shall be considered under the head Profits & Gains of Business & Profession.
The Income Tax Act requires that TDS should be deducted @10% for any payments made as fees for professional services.
Claiming expenses that are directly related to your freelancing work, reduces your total income and tax thereon. Your Total Income less directly relatable expenses is your Income from your freelancing work.
Yes, you can deduct this expense from your Business Income.
Once you sign up with ClearTax and provide us the information we need, we do the return filing for you.
Anyone who is carrying on a business or profession is required to submit income tax return in the ITR-4 form.
Section 194J of the Income Tax Act lays out that TDS is to be deducted @10% on any amount paid for professional or technical services.
As per the Income Tax Act – When you earn 'Income' from any profession that involves work, which requires you to use a skill, which is an intellectual skill or is a manual skill, such income will be taxable under the head 'Profits & Gains of Business & Profession'.
Your income is the sum of all your receipts from carrying on this work for your clients. Your clients may be based in India or outside of India and they make the payments towards the work you do for them. You can use your bank account statements to add up all the receipts that have been credited to your account by clients as payment towards work done.
In general if you satisfy these conditions regarding your expenses, you can deduct them from your income-
Therefore the following expenses when they satisfy the conditions laid out above will be allowed to be deducted from your income –
Rent – If you take a property on rent for carrying on your work, rent paid by you is allowed to be deducted.
Repairs – If you have agreed to pay for repairs to the rented property then these repair costs can be deducted. If you own the business property and carry out repairs those are also allowed to be deducted. Any repairs to your laptop, printer, equipment are also allowed to be deducted.
Depreciation – When you purchase an asset which is a Capital Asset, the benefit of such an asset is usually expected to last more than a year, such assets are capitalized and not charged to expenses when they are bought. Every year a small portion of its cost is expensed and is allowed to be reduced from your income. This expense which is charged every year is called Depreciation. For example, when you buy a laptop for Rs 60,000 to carry on your freelancing work – the Rs 60,000 will be considered your asset and assuming a straight line depreciation of 33.33% each year (depreciation % and methods are laid out in the Act for different type of assets, hypothetical rate here for ease of understanding), every year Rs 20,000 shall be charged as expenses. And in 3 years we would consider the asset to be fully depreciated. Note that, the type of assets, methods of depreciation and rates of depreciation to be charged as per the Income Tax Act are laid down by the Act itself and those shall be applied.
Office expenses – Expenses incurred to carry on your work such as printer supplies, your monthly telephone bills, internet bills or conveyance expenses – when you go to meet clients. Expenses of Domain registration, apps purchased to test your product; those are also allowed as expenses.
Travelling expenses – when you do a travel to meet your client could be within or outside of India (of course, assuming this is not paid for by your client).
Meal, entertainment or hospitality expenses – when you do client meetings, when you take your clients out for dinner or some other outing and money has been solely spent with the intention of getting new business or retaining existing business.