Freelancers are taxed under the head “Profits and Business or Profession,” whereas salaried employees fall under “Salaries.” The tax rates are the same, but the way income is calculated differs. Freelancers need to keep track of their business receipts and expenses.
Salaried workers can claim a standard deduction of up to â‚ą50,000 in the old tax regime without any proof. In the new regime a higher standard deduction is available, but it is only for employees. Freelancers do not have a similar provision.
Instead, freelancers can deduct genuine business expenses that are directly related to earning their income. These include internet, mobile, printing, stationery, and conveyance costs, as long as they are not personal expenses.
If you work from a rented home, you may claim a small portion of rent and electricity for the office space. Depreciation on computers and printers, as well as repair costs, can also be deducted. Other expenses can be claimed if you can prove they are for the business.
After subtracting all allowable expenses from the total receipts, the remaining amount is taxed under “Profits and Gains from Business.” This is the same slab that applies to salaried income.
Under the old tax regime, you can still claim deductions for life insurance, health insurance, home loan repayment, and PPF contributions. These reduce the taxable income before the slab rates are applied. Capital gains are taxed separately at flat rates depending on their nature.
Because a freelance writer is not eligible for the presumptive taxation scheme, the correct form to file is ITR‑3. This form covers income from business and profession.
The tax rates for freelancers and salaried individuals are identical; the difference lies only in the head of income and the deductions available.
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