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Freelancing With a Regular Job? Here’s How to Save Tax

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New Delhi: With the cost of living going up, a lot of people are looking for ways to increase their income. Many nowadays, take up freelance work along with their regular jobs to increase their earnings. Freelancing income comes into picture when you get hired to work on specific assignments for a specific term and get paid for the work upon completion and submission. You will not be an employee of the company or placed on their payroll. Any income that you earn by displaying your intellectual or manual skills is the income from a profession according to income tax laws in India. Such income will be taxable as “Profits and Gains from Business or Profession”. Your gross income will be the aggregate of all receipts you get in the course of carrying out your profession. Total taxable income and tax payable: One can reduce their tax outgo by making full use of deductions under Section 80. In Section 80C of the Income Tax Act offers tax relief on certain expenses and encourages taxpayers to save for the future (by giving deductions on investments in financial products). Net Taxable Income = Gross Taxable Income – Deductions You can reduce your taxable income by up to Rs 1.5 lakh by claiming deduction for the amount actually invested/spent under this section. If you are aged within 60 years and your net taxable income is more than Rs 2.5 lakh, you are liable to pay tax on your income. Taxes payable for a freelancer: If the total tax liability during a particular financial year amounts to Rs 10,000 or more, then the taxpayer is required to pay the taxes every quarter which is called advance tax. How to calculate the advance tax? Add up all your total receipts and then determine your total income. Subtract those expenses that are directly related to your work. Add the income from other sources, for instance, house property or a savings account. Find out the tax slab that you belong to and then calculate your tax that is due. Don’t forget to deduct the TDS. If the tax due exceeds Rs 10,000, you are required to pay the advance tax by the due dates. Penalties for non-payment of advance tax If the advance tax is not paid by the free-lancer then interest as per section 234B and section 234C is applicable. Freelancers can save tax by claiming deduction of expenses from the freelancing Income Prerequisites to claim the deduction of expenses from the Freelancing Income: The expense is for the freelancing work being carried on It has been spent fully and exclusively for the purpose of your work It is incurred during the tax year It is not a capital expenditure or a personal expenditure of the freelancer It is not incurred for any purpose which is an offence or is prohibited by law Expenses allowed as Deduction: As per the Income Tax Act 1961, freelancers can deduct those expenses that they have incurred to carry […]

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