All individuals, self-employed or not, with an annual income of over Rs. 2.5 lakh in India, are liable to pay income tax regardless of the source. Quite often, though, self-employed earners fail to file their taxes due to a lack of a formal accounting process.
However, with the government and tax authorities keeping a close watch on tax evaders, it is better for all self-employed individuals to be tax compliant and file their returns. Read on to know the various aspects of self-employment tax in India.
Should you incorporate a company?
When you decide to set off on your own, you must answer one of the first questions. While there is no law that you need a ‘company’ to start a business, it holds true only if you’re the sole proprietor and your work is well-managed.
If your business grows and you start hiring employees, you need to set up a company with a separate bank account and PAN to file your tax with ease. However, if you are a freelancer, you needn’t go through this process.
How do you file income tax returns?
Self-employed individuals can file their income tax returns through an ITR-4 or ITR-4S form. The ITR-4 form is for individuals earning from a professional or proprietary business, while the ITR-4S form is for those who have a presumptive business income. In the latter, a certain percentage of the receipts are taken as net income, and you’ll pay tax on that instead of claiming business expenses against those receipts and paying tax on the balance. But before filing the tax return, you can calculate income tax to understand the deduction and other benefits.
With this, you can avoid the effort of maintaining profit and loss statements and repeatedly estimating taxes on them. However, if you earn over Rs. 1 crore(for business) or Rs. 50 lakh(for the profession) per year, you must maintain a book of accounts and have it audited.
Freelancers can save taxes by claiming business-related expenses. So, keep your bills carefully if you’re a freelancer. You can also claim all the deductions under Section 80C of the Income Tax Act, just like regular salaried individuals.
Exempt on interest paid on loans
Moreover, if you’ve availed of loans to help you expand your business, the interest on that is also exempt from tax. Availing of such loans is quite easy these days with the pre-approved offers provided by Bajaj Finserv. All you have to do is give some basic information and you can get your pre-approved offer.
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