Freelancers or work-from-homers often miss out on a massive chunk of benefits that regular office-goers can lay claim to. From medical insurance, paid-for meals, childcare to business deductibles, they often end up plodding and paying their own way through for these essentials. (A ‘deductible’ or ‘write off’ is any legitimate expense that can be deducted from your total taxable income, thus reducing the amount of tax you need to pay).
However, if you work from home, any business-related costs incurred by you are just as valid. They can and should be claimed as tax write-offs. Here are some important incurred expenses freelancers forget to claim as deductibles.
1. Unpaid Invoices
Just because a client has stiffed you, that doesn’t mean you have to lose all your money. As long as you have evidence in the form of any invoices you may have sent, and a record of the work you did for the client, you can write-off unpaid invoices as a tax deduction.
2. Home Improvement
If you’re a freelancer, your home is your office! You wouldn’t be expected to work in an office without a working AC, a proper desk, ventilation and access to drinking water and a washroom, would you? No one would work in a sub-par office, and the same goes for your home office. Under 44ADA you can claim part of the rent paid for your residence as a business expense.
3. Courses & Subscriptions
Ever taken a writing course to hone your skills? Or did you attend a conference to network, learn something new or get industry exposure? Any workshop, course, conference or class you take in the furthering of your career is a legitimate business expense, and can be written off. So that programming course you did? Or that web-developers’ newsletter you subscribe to? Don’t forget to claim it while filing your IT return.
4. PayPal Fees/Transaction Fees
Overseas clients often use PayPal or other third party services to pay their freelancers, and any fees or subscriptions paid can absolutely be claimed as tax benefits.
You can even claim the fees you pay to maintain a domain or a website online.
5. The 50% Rule
Also, an interesting facet of Indian law is that if you’re a freelancer who makes under 50 lakh rupees per annum, you need to pay taxes on only 50% of your income.
Mumbai-based CA, S Purohit explains, “Under Section 44ADA of the Income Tax Act, 1961, a freelancer who is a resident of India, and whose net income is Rs 50 lakh or less, is given relief to show 50% of the gross receipts as deemed to be the profits and gains of such profession chargeable to Income Tax under the head Profit and Gains of Business or Profession. For instance, if a person earns Rs. 40 lakhs per year, the tax will be paid on Rs. 20 lakhs.”
This rule applies only if you are a freelancer, and not on the payroll of any company, Indian or otherwise.
6. Office Supplies
From stationery to computer, electricity and phone bills, all expenses incurred by you in the furtherance of your business are tax-deductible. Freelancers can also claim other expenses such as medical insurance, annuity plans and more, as an individual or HUF, under Article 80.
7. Internet & Phone Bills
Any and all costs including telephone expenses, Internet fees, travelling expenses, petrol/diesel costs, incurred in the pursuit of your work, are legitimate tax write-offs. You can even claim depreciation in the cost of items such as a home computer and a car, as tax write-offs.
If your total annual income exceeds Rs 2.5 lakhs, it is a good idea to file taxes. People labouring under the delusion that income from freelancing or online work isn’t taxable should note: it is. Not only is freelance income taxable, it is also liable to tax deductions and relief like any other profession.
The financial year ends every March 31 and the last date to file taxes is July 31. Sites like Income Tax India E-filing and Cleartax make the process straightforward and hassle-free. Make sure to file your taxes before that, and claim deductions against all the categories you can. Happy filing!