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Income as a consultant is taxed under the head “Profits and Business or Profession” whereas the salaries are taxable under the head “Salaries” (Photo: iStock)
Income as a consultant is taxed under the head “Profits and Business or Profession” whereas the salaries are taxable under the head “Salaries” (Photo: iStock)

Income tax: How are freelancers, consultants taxed?

  • Salaried person can claim upto 50,000 as standard deduction without having to submit any documentary evidence
  • No similar provision for claiming a standard deduction for a consultant against income received from free lancing

I am a freelance writer earning approx. 60,000 per month. I have shifted from Pune to Saharanpur four months ago. In Pune I was working as a full time salaried employee. I want to understand if there is any difference in taxation of income for me now? How is the income of a consultant taxed? Is it different from the way income of a salaried individual is taxed?

--Aparna Kumar

By Balwant Jain, Chief Editor, ApnaPaisa

Income as a consultant is taxed under the head “Profits and Business or Profession" whereas the salaries are taxable under the head “Salaries". As a salaried person you are allowed to claim upto 50,000 as standard deduction to take care to expenses incurred by you against your salary income without having to submit any documentary evidence. There is no similar provision for claiming a standard deduction for a consultant against income received from free lancing.

However as a consultant you are allowed to claimed expenses on actual basis which have been incurred by you in connection with your work as a consultant and which are not personal in nature. These will broadly include expenses like internet expenses, mobile expenses, printing and stationery, conveyance expenses etc. to the extent these are attributable to your activity as consultant after removing component of personal use if any.

You can also claim very small portion of house rent (if rented) and electricity expenses in respect of the house. You are also allowed to claim depreciation on computer and printer used for your wok. In addition to the depreciation, you can also claim expenses incurred on repairs and maintenance of computer and printer.

The expenses listed are enumerative and you can claim any other expenditure if you can establish that the same has been incurred for your working as a consultant.

The net of professional charges received over the expenses incurred is taxable under the head “profits and gains of business and profession".

In case you have any other income like interest, dividends, capital gains etc. they are taxed under respective head and then all the incomes are added up.

In case you have taken a home loan, interest paid on such loan can also be claimed within specified limits while aggregating you income from all the sources.

From the aggregate of the income from all the sources you are allowed to claim various deductions the same way a salaried can claim, like deductions under Section 80 C, 80CCD, 80D, 80TTA etc.

In case you are staying in a rented place you can claim the same under section 80GG upto 5,000 per month. The net income arrived at is taxed at the slab rates applicable to you. However some capital gains are taxed at a flat rate.

Since you are freelancing as a writer, you are not eligible to offer your income on presumptive income so you will have to file your income tax return in ITR3.

There is no difference as regards the rates at which the income of a salaried person is taxed as compared to a freelance writer or a consultant.

(Views are as expressed by the expert)

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