Understanding Income Tax for Self-Employed Individuals: A Complete Overview

The term “Self-Employed Individual” means any person who is a business owner or a professional who makes income by selling his or her services to different employers without binding a full-term contract with any of them. These are persons involved in a variety of occupations but generally are highly skilled at a particular kind of work. There is no fixed salary or income from any organization. Examples of Self-employed individuals are a writer, freelancers, insurance agents, lawyers, traders/investors, salespeople, doctors, architects, painters, sculptors, authors, auditors, tradesperson, etc. Self-employed individuals can file their income tax return (ITR) through an ITR-4 or ITR-4S. The ITR-4 form is for individuals who are earning from a professional or proprietary business, while the ITR-4S form is for those individuals who have a presumptive business income. The Income earned by a self-employed individual is logged under “income from business or profession”. There are mainly two ways in which taxation of self-employed persons can be undertaken: Self-Employed Individuals Taxes Under the Presumptive Taxation Scheme When an individual chooses to file their taxes under the presumptive taxation schemes, then he/she cannot claim any expenses or deductions. There are some points to keep in mind while choosing this type of method: Annual turnover must be below Rs. 50 lakhs in gross receipt or below Rs. 2 crores in business turnover.The minimum income for professionals is 50% of the gross receipt.The minimum income for a business owner is 8% of the gross receipt.The minimum income for the digital receipts is 6%. Self-Employed Individuals Taxes Under the Real Profit Scheme When an individual chooses to file their taxes under the real profit schemes, then he/she shall be eligible to claim or deduct expenses from the taxable income. There are some points to keep in mind while choosing this type of method: When income exceeds Rs. 50 lakhs per annum, then the books of accounts shall be audited by a Chartered Accountant.The Individual shall maintain receipts and vouchers as valid proof of the expenses claimed. Process for filling Income Tax for the Self-Employed Individuals: Understand the Tax Treatment: The income tax return for self-employed means that the individual has to pay taxes on the combined income earned in a particular financial year. All the earnings irrespective of the amount should be added to the gross income for the year.Choosing the Right ITR: Selecting the right ITR is a crucial step for e-filling your income tax returns. If an individual is having any doubt in choosing the right ITR then he/she can consult a professional about which ITR to file.Compute the Tax Deducted at Source (TDS): The self-employed individuals who are professionals and send receipts to clients will have tax deducted at source at 10%. The TDS will be reported by the Income Tax Department. Based on the expenses and deductions claimed the individual can claim a refund on the TDS.Claim Business Expenses: In the case of a business operator, the individual can claim expenses for his/her business. This may include the rent, salary, depreciation of equipment, travel, phone bills, etc. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Understanding Income Tax for Self-Employed Individuals: A Complete Overview

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