Knowing Income Tax for Self-Employed

Have would a self-employed person operate his tax? Self-employment has several advantages to offer. Few deductions are available for savings and self employed expenses for those who are salaried, and the government denies a sizeable portion of their pay. However when compared to salary or rental incomes, self-employment income has enormous tax advantages. In this article we will discuss Income Tax for Self-Employed. 

Table of Contents

Meaning of Self-Employed

A person who sells his services to various employers without a long-term contract with any of them. The Income Tax Act 1961 imposed on self-employed income under the heading “Profit and Gain from Business or Profession”. According to the Income Tax Act, self-employment includes a profession. There is no definite definition of profession given in the Income Tax Act. Vocational occupation also includes profession as specified in the Act.

How to Calculate Income Tax for a Self-Employed Person?

There are two methods to calculate Income Tax for Self-Employed individuals:

Also read– Everything you need to know about Income Tax Return for Freelancers

Presumptive Taxation

Presumptive taxation is a new idea that the government has implemented for firms and professions with annual gross receipts of less than 50 lakh rupees and 2 crores, respectively.

• There is no requirement to keep records, books, etc. under this plan. In this instance, the predicted profit is 8% of the enterprises’ combined gross income and 50% of the profession’s combined gross income for the fiscal year. For independent contractors, the regime is voluntary. The only requirement is to have your accounting records examined by a chartered accountant, which is also indicated when filing income tax returns and making tax payments.
• By the proposed plan, assessees may apply for Section 80C investments that save taxes and Section 80D health insurance premiums.
• Section 80 of Chapter VIA permits deductions. Only assessees who are residents of India and fit under the categories of individual, HUF, or partnership entity are eligible for this plan.
• If a resident assessee elects to file an income tax return under the presumptive scheme for any fiscal year, he may elect to file under the presumptive regime the next fiscal year and file as a regular assesse. However, under this circumstance, they are unable to make use of the planned system’s advantages during the following five fiscal years.

Income Tax Return under the Real Profit System

The second option for calculating Income Tax for Self-Employed in India is to deduct all your self employed expenses from your annual income and then calculate the tax on your actual profit. Below are the points to remember if you want to file ITR using this method-

• You can take several deductions when calculating your taxable self employment income such as regular expenses incurred on your self employed business expenses, wages you pay to your employees, interest you pay on business loans, insurance premiums, etc.
• Claiming deductions from other expenses such as your internet and phone bills, travel expenses, etc.
• You will need to provide proof of any deductions or expenses you claim.
• You will need to keep the books of your self employed business expenses. If your annual income exceeds ₹50 Lakh, it requires the books of accounts audited by a Chartered Accountant (CA).
• If your business’ annual turnover is more than ₹2 crore, then this is the only option for you to file an ITR.

Income Tax Rate for Self-Employed Individuals

The Income Tax for Self-Employed requires awareness of your income tax rate. In India, the self-employed pay the same amount of income tax as professionals who are employed on a salary as showcased below-

These rates apply to assesses under the age of 60.

Income Tax Return Filing Date

The dates for filing Income Tax for Self-Employed are-

Takeaway

Every self-employed person has the opportunity to manage their taxes independently. They can take full control of self employment income and expenditure planning to ensure maximum tax savings. For salaried individuals, the government takes a large portion of their salary and only limited deductions are offered for savings and expenses. But self-employment income has huge tax advantages compared to salary, business, or rental income.

In case of any query regarding the Income Tax for Self-Employed, a team of expert advisors from Legal Window is here to assist you at every step. Feel free to reach us at admin@legalwindow.in.