Author: Khushi J Prajapati
While freelancing provides the freedom and autonomy to work at your own pace, one of its downsides is the commitment of paying your own taxes. However, knowing the main tax deductions can reduce tax liability significantly giving you more money for personal use. There are numerous tax deductibles which include home office expenses and travel among others; therefore it is important for every freelancer to take heed of these deductions so as to pay fewer taxes. Below is a list of major tax write-offs that every freelancer should have in mind if they are looking forward to saving money on taxes and complying with government rules concerning taxation.
1. Section 80C: Investments and Saving Deductions
The Income Tax Act’s Section 80C enables people who pay tax to deduct an amount not exceeding ₹1.5 lakh in every financial year from certain purchases and acceptable expenses thus aiding in reducing taxable earnings. Life insurance premium payments, Public Provident Fund (PPF) contributions, National Savings Certificates (NSC), tax-saving fixed deposits with a maturity of five years and investments into Equity Linked Savings Scheme (ELSS) are just some of the things that qualify for exemption.
2. Section 80D Health Insurance Premium
As per Section 80D of 1961 Income Tax Act, freelancers are allowed to claim deductions in respect of premiums paid on their own health insurance policies and those of their spouse dependent children and aged parents. The maximum amount that can be deducted is ₹25,000 (₹50,000 for senior citizens), which also includes preventive healthcare checkup charges within this limit.
3. Section 37(1) Business and Professional Expenses
Deductions on business and professional expenses may be granted under section 37(1) of the Income Tax Act, as long as these are “wholly and exclusively” incurred for business purposes, without any specific monetary limits. Office rent, utilities, business travel, advertising, stationery supplies and depreciation on capital items are just a few examples of expenses that qualify. As long as they can be traced back directly to their operation, these costs can reduce ones taxable income.
4. Section 80E Deduction for interest in Education Loan
Section 80E provides a deduction on interest paid towards education loans and there is no limit on the amount that can be claimed. However, this deduction shall be available only for a maximum period of 8 years or until such time as the interest on loan is fully repaid.
5. Section 80G Deduction and Donations
Based on the organization type, Section 80G computes donations in percentage terms: 100% for certain funds like the Prime Minister’s National Relief Fund, 50% for other charitable organizations, or capped at 10% of adjusted gross total income in some cases.
6. Home Office Deduction & Section 80TTA Deduction on Interest on Saving Account
There are no monetary thresholds for Home office deductions, which are calculated based solely on the percentage of the residence utilized only for business purposes. Nonetheless, costs must be sensible and relate directly to the working place.
The section 80TTA allows an exemption of up to ₹10,000 in each financial year on interest earned from savings accounts in banks and post offices or cooperatives.
7. Depreciation on Business Assets Section 32
As per section 32, depreciation on the assets owned by an enterprise is computed with respect to their worth and usage in carrying out business activities. Depreciation rates for computers and laptops stand at 40%, whereas they are10% for furniture and fittings. The depreciation rates for other assets will depend on the type in question as well as its class or category. This approach makes it possible for firms to account for the reduction in value of their equipment through time, consequently lowering taxable income.
8. Section 80GG Rent Deduction for Freelancers without HRA/ Bad Debts Deduction / Telephone and Internet Expenses
This is Section 80 GG that could let freelancers without HRA claim a rent deduction that maximum are ₹5,000 per month, 25 percents of total income or rent paid minus 10 percent of their total income in case they do not have any residential property in same city. In case they don’t have a house in the same city the maximum a freelancer would be able to claim under Section 80 GG is ₹5000 (rupees five thousand) per month rent allowance or where lesser percentage such as 0.25 would apply to show at least it has been acknowledged by past as income before its presumed irrecoverable status comes into play. These will however only be recognized if such debts had earlier been termed as income and afterwards considered valueless; evidently no fixed amount can be stated for bad debts but which could only be deducted based on how much was previously declared as revenue and now is no longer collectable.
For telephone and internet costs, nothing limits them financially but rather deductions made depend solely on the part for business use requiring detailed documentation to support the claims made.
9. Presumptive Taxation For Freelancers Section 44ADA
For freelancers and professionals whose gross receipts do not exceed ₹50 lakh in a financial year, Section 44ADA provides a simplified tax option. This scheme allows them to declare 50% of their total receipts as taxable income, which is considered to cover all of their business expenses. This method removes the necessity for painstaking accounting of separate costs and reduces compliance burdens. Hence, the remaining 50 percent portion of gross receipts become business costs; this simplifies tax calculation processes while enabling small professionals to manage their tax obligations more easily.
10. Standard Deduction on Professional Income
For freelancers, standard deduction allows for the claim of costs directly linked to their profession. These deductible expenses encompass professional subscriptions; membership payments done to professional associations as well as fees incurred when taking up courses or other forms of training geared at improving skills. However, such claims must be accompanied by valid documentation in order to comply with tax laws and regulations.