If you are a freelancer, your income is classified as ‘income from business or profession’ and here, you are allowed to claim the expenses that you incur w.r.t earning that income as a deduction.
For example, you are a freelance graphic designer and earned ₹20,000 for a project. This amount would be your gross receipt. But, you also bought a design software for ₹5000, which would be your expense. Hence your net earnings would come down to ₹15,000 and this amount will be taxable.
Just like this, freelancers can claim various expenses as a deduction and then calculate their net income. Here’s a list.
-
Rent expense: If you have rented space to carry out your freelance business or profession, you can claim the rent that you pay as an expense.
-
Internet and telephone bills: If you are using a separate internet and phone subscription for your work, you can claim the whole bill as an expense. In case you use the same subscription for your personal use as well, then you can claim a proportionate amount.
-
Electricity expense: Similarly, if you are using separate premises for your work, you can claim the full bill as an expense and if you are WFH, you can claim a proportionate amount.
-
Travel expense: You can claim the money you spend on travelling for work purposes as an expense. If you are travelling to a different city, you can also add accommodation and meal expenses.
-
Memberships and subscriptions: You must be taking certain memberships and subscriptions to various tools to carry out your work and these are allowable expenses. Also, any courses or books that you buy to upskill yourself can also be added.
-
Office/stationary supplies: Any kind of stationary or printing expense is also allowed as a deduction.
-
Depreciation: If you purchase an asset like say a laptop for your work, you will be using it for more than a year. Hence, for such assets, you can’t claim the entire amount as an expense in one financial year. But, you can claim depreciation on it, which means every year a small portion of its cost will be allowed as an expense.
This is not an exhaustive list. You are allowed to add any other expenses that you incur for earning your income. The expenses will also be subjective to the kind of profession you follow. For a photographer, a camera would be an asset that they can claim depreciation for whereas, maybe for a business consultant, travelling would be a big expense.
Now, while you can reduce your taxable income with such deductions, here are a few things you should keep in mind:
-
The expense must be wholly related to your work.
-
Make sure to keep the receipts of these payments.
-
Opt for digital modes of payment and avoid cash transactions.
-
You can’t claim these expenses if you opt for the presumptive taxation scheme. In that case, you will have to report a fixed percentage of your revenue as income.
Lastly, here’s a read on how freelancing income is taxed.
Let us know if you have any doubts!