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Tax planning for Freelancers and Self Employed Individuals

  • Posted By SuperCA
  • On 28 February

Tax planning for Freelancers and Self Employed Individuals


Being a freelancer or self-employed person in India, it's essential to understand the tax laws and rules that pertain to you and your business. Planning your taxes wisely can reduce your tax burden and increase your revenue. Becoming tax-compliant is a serious problem in today's environment when tax laws are changing quickly. This blog post will go over several tax preparation techniques that freelancers and other self-employed people in India can use to their advantage.


Key Steps To Consider

By taking the steps outlined below, Freelancers and Self Employed Individuals can minimize their tax liability and ensure compliance with laws and regulations.


Understand Your Tax Obligations

Understanding your tax obligations is the first step in efficient tax preparation. If your annual income as a freelancer or self-employed person exceeds the basic exemption level of INR 2.5 lakh, you must file an income tax return (ITR) every year. Taxes must also be paid on your business income, which is determined by your net profit following the deduction of all permissible expenditures.


Maintain Proper Records

For precise tax preparation, reliable recordkeeping is crucial. You should keep track of all your business expenses, including receipts and invoices, whether you are a freelancer or self-employed person. You can reduce your tax liability and claim deductions as a result. Also, you should keep separate bank accounts for your personal and company needs.


Claim Deductions

The use of deductions is one of the best tax planning techniques for independent contractors and other self-employed people. Rent, travel costs, office costs, professional fees, and insurance premiums are just a few of the expenses that you can deduct for your business. Sections 80C and 80D of the Income Tax Act, respectively, allow you to deduct payments to pension funds and health insurance premiums.


Choose the Right Business Structure

For tax planning, selecting the appropriate business structure is essential. You can run your business as a sole proprietorship or a partnership as a freelancer or self-employed person. Also, you can register your company as a private limited company or a limited liability partnership (LLP). You should pick the business structure that best satisfies your needs and objectives because each one has different tax ramifications.

For instance, a sole proprietorship lacks limited liability protection despite being the simplest and most economical corporate structure. A private limited corporation, on the other hand, offers limited liability protection but is more difficult and expensive to start up and run.


Pay Advance Tax

If your tax due as a freelancer or self-employed person exceeds INR 10,000 in a financial year, you must pay advance tax. The final payment for advance tax is required by March 15 of the year after it is paid in installments throughout the year. You can avoid interest and penalties for late tax payments by paying advance tax.


Invest in Tax-Saving Instruments

For independent contractors and other self-employed people, investing in tax-saving instruments is another efficient tax planning technique. Public Provident Fund (PPF), National Savings Certificate (NSC), tax-saving fixed deposits, and Equity-Linked Savings Plan are just a few examples of the numerous tax-saving investments available to you (ELSS). These investments can help you reduce your tax burden while increasing your wealth because they qualify for tax incentives under Section 80C of the Income Tax Act.


Take Advantage of Section 44ADA

A presumptive taxation mechanism is provided for independent contractors and professionals with gross receipts up to INR 50 lakh by Section 44ADA of the Income Tax Act. In accordance with this plan, you can declare your income at a fixed rate of 50% of your gross receipts without keeping extensive records. You can save time and money by doing this and simplify the tax filing process.


Taking advantage of Section 44AD

Section 44AD is another important section of the Income Tax Act that applies to freelancers and self-employed individuals who are engaged in certain specified professions or businesses. Under this section, such individuals can opt for a presumptive taxation scheme, which simplifies the tax filing process and reduces compliance costs.

The scheme applies to individuals who are engaged in the following professions or businesses:

  •  Business of plying, hiring or leasing of goods carriages
  •  Any business other than the above with a total turnover or gross receipts of up to INR 2 crore in a financial year

Under the scheme, the individual is required to declare his income at a predetermined rate of 8% of the gross receipts or turnover. This means that if the individual's gross receipts for the year are INR 50 lakh, his taxable income will be assumed to be INR 4 lakh (8% of INR 50 lakh).


It is significant to note that if a person chooses Section 44AD's presumptive taxation scheme, he is not required to keep thorough books of accounts or have his accounts audited. He will still need to keep basic documents, including invoices, receipts, and vouchers, of his business dealings.


An individual must keep accurate books of accounts and have them audited by a certified accountant if they desire to opt out of the presumptive taxation arrangement under Section 44AD. This is typically necessary when the person wants to deduct business expenses or when his income is higher than the maximum allowed under the plan.


How can SuperCA help you?

SuperCA is a coalition of skilled professionals providing top-notch financial and tax solutions. We are a youthful, motivated team of lawyers, CAs, CSs, and MBAs who can provide you with one-stop solutions to any of your tax-related questions.

We can assist you in adjusting to evolving compliance standards and shifting environmental conditions. We recognise that it can be quite difficult for freelancers and other self-employed people to stay in compliance with the constantly changing tax regulations. Even the complexity of submitting tax returns is increasing, which leads taxpayers to seek the help of tax professionals. In this ever-changing regulatory climate, our network of tax compliance professionals can assist you with tax file preparation, management, and execution.

Our tax professionals would ensure that all your paperworks are filled out as accurately as possible while yet adhering to compliance requirements. It also helps you save time. The normal person needs a lot of time to gather and research records. Our experts can complete the same task quickly and efficiently. We also keep you informed about all the important phrases and figures related to taxes and also keep them aware regarding the deadlines.



For freelancers and other self-employed people in India, tax planning is a crucial component of financial planning. You can reduce your tax liability and increase your income by being aware of your obligations, keeping accurate records, claiming deductions, selecting the best business structure, paying advance tax, investing in tax-saving devices, and taking advantage of Sections 44ADA and 44AD.


Keeping compliance can also help you expand smoothly and intervention-free while also keeping you in the good graces of the authorities. The tax authorities may issue legal notifications, impose penalties, or take other action as a result of noncompliance with reporting requirements, income tax returns, or other tax regulations.