Being self-employed seems to be a great idea. You don’t have a boss to answer to, you decide your own work timings and you can even choose the people you work with. In many ways, being self-employed can be much better than being a salaried employee. But not in one aspect—filing income tax returns.
Income tax returns are more complicated for the self-employed than they are for those who earn a salary. There are a lot of aspects that get taken care of for the salaried, which the self-employed have to work on themselves. But here are four e-filing strategies that the self-employed can use to make the process simpler.
Understanding the tax treatment
A self-employed individual is one who doesn’t earn a fixed salary from a company. You are hired on a contractual or an assignment basis for your intellectual or manual skills. Hence, from a tax perspective, your income is Profit & Gains of Business & Profession. You have to pay taxes on the combined income you earn in a financial year from the different clients you have. All earnings, no matter how small, should be added to your gross income for the year.
Choosing the right ITR
For self-employed individuals, the correct ITR form is ITR-4. Choosing the right ITR is an important step in e-filing your income tax returns. You should also be aware of Section 194J of the Income Tax Act that mandates deduction of TDS from payments made to professionals.
Tax deducted at source
Whenever you receive a payment from a client, you will receive it after TDS is deducted on it. TDS is usually deducted at the rate of 10% on the payments made to you. But the good news here is that, just like salaried individuals, even you can claim a refund on the TDS that is deducted on your behalf after you e-file your tax returns.
Claiming expenses to reduce tax outgo
Since your income is treated as profits and gains of a business, even you can claim certain expenses that you have incurred towards getting this business. You can use these expenses to reduce your income and tax on it. These expenses include rent for office space, meal and entertainment expenses for client meetings, depreciation of computer and other equipment, travelling costs, etc.
These are a few ways that self-employed individuals can use to simplify income tax filing. E-file before the due date to avoid an income tax notice from the tax department.
This article was published on Yahoo Finance on 3 August 2016.
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