Every year, people scurry around in search of the best tax-saving instruments. They spend hours mulling over various schemes to save a reasonable amount of their income. Whether salaried or self-employed, the pain of giving away a portion of their earnings is mutual. Unlike salaried people, the self-employed face a different set of struggles.
Did you know? A significant portion of India’s earning population is self-employed! Piyush Goyal, India’s former Finance Minister, once remarked job losses as a positive sign since youngsters today prefer being job creators, not seekers. However, artists and entrepreneurs alike need to adhere to tax regulations. Fortunately, there are numerous ways to hold on to their income.
Being Self-Employed in India
The Income Tax Act 1961 states that those without a fixed income or salary from an organisation are considered self-employed. It means individuals involved in a business, trade commerce or profession are liable to pay taxes. For those that prefer non-corporate fields, self-employment is a great way to pursue their passions independently.
Vocations under this category include painters, authors, auditors, lawyers, doctors, architects and others. Since they have an erratic payment schedule, they must opt for the best tax-saving avenues available. The following terms and definitions under the IT Act apply to the self-employed.
- Business includes any trade, commerce, manufacturing, etc.
- A self-employed person offers their services to employers without engaging in long-term contracts
- Profits are calculated after deducting all the expenses and losses incurred during the business or profession
- Self-employed individuals are charged income tax under “Profit and gain from business or profession”
- Earnings over ₹50 lakhs in a financial year must be audited by a qualified Chartered Accountant
Financial experts advise such individuals to set aside a portion of their savings and earnings in investment instruments. It will allow them to multiply their wealth and, at the same time, benefit from various tax deductions.
Tax-Saving Methods for the Self-Employed
While they can opt for investment instruments based on their financial capacity, there are other ways to save taxes. To help narrow down your choices, we have rounded it up to the following tax-saving methods.
Today, numerous investment opportunities can be viable tax-saving options for the self-employed. They can claim tax benefits on investments up to ₹1.5 lakhs under Section 80C of the IT Act. Those who fall in the tax slab of 30% can invest ₹1.5 lakhs and save up to ₹46,800 p.a.
Self-employed individuals can opt for the following investments that are eligible for these deductions.
- Public Provident Fund (PPF): Annual PPF contributions up to ₹1.5 lakhs and the interest earned is tax-free under Section 80 C
- National Pension Scheme (NPS): Investors can avail of tax benefits up to ₹1.5 lakhs with additional benefits of ₹50,000
- Mutual Funds (ELSS): Inflation-beating returns along with tax savings
- Tax-Saver Fixed Deposits: Interest earned under this investment qualifies for tax deductions
- Sukanya Samriddhi Yojana (SSY): Compounding benefits with the flexibility of deposit amounts and transferability between regions ‘
1. Claim Expenses
A great way to save on taxes or recover earnings lost to incurred expenses is to claim it through income tax. Those opting to file income tax through the regular method can avail this option to reduce the taxable income. Ensure that all claims made are legitimate and easily backed with authentic proof.
The following expenses can be claimed under income tax.
- Office supplies
- Phone bills
- Travel expenses
- Internet charges
- Business-related expenses
- Professional fees
2. Presumptive Tax Scheme
The government recently introduced an alternative to tax filing to aid the self-employed. It’s only applicable for those whose income is ₹50 lakhs p.a.
If a business has an annual turnover under ₹2 crores, they’re eligible for presumptive tax. However, they must declare profits of 8% for non-digital and 6% for digital transactions.
You can save thousands or lakhs in taxes by employing these methods. Pursue your artistic, entrepreneurial or professional dreams while taking control of your income and ensuring maximum tax savings. Visit Bajaj MARKETS today to explore a diverse range of investment instruments.