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Income Tax for Self-Employed

4 Mins 24 Jan 2023 0 COMMENT

Not everyone wants to do a nine to five job, sitting at a desk and following instructions. Some people like to work for themselves, doing consulting jobs or running a small business. No matter what your form of employment, if you make income in India, you have to file taxes. As a non-salaried professional, you will need to pay income tax for self-employed persons.

Who is Considered Self-Employed?

If you are an individual who does not receive a fixed income or salary from an organization, you will be considered self-employed. You could make income from selling services to various businesses under short-term contracts or consultant contracts, or be engaged in the business of trade, commerce, manufacturing or other related activities on your own.

You will also be considered self-employed if you are a professional or pursue a vocation in which you are skilled, such as a doctor, lawyer, architect, painter, sculptor, author, auditor, etc.

When you qualify under the aforementioned parameters, you will need to file self-employed taxes or income tax for self-employed individuals.

How is Tax Calculated for the Self-Employed?

When filing income tax for self-employed, you will need to use form ITR-4 under the head ‘income from business or profession’. There are two ways in which taxation of self-employed persons can be undertaken:

  • The tax liability can occur on a presumptive taxation basis, wherein no deductions or expenses are accounted for.
  • You can also calculate the tax based on real profit which accounts for expenses that crop up in regular course of business or any deductions that can be claimed.

Self Employed Taxes Under the Presumptive Taxation Scheme

If you choose to file your taxes under the presumptive taxation schemes, then you cannot claim any expenses or deductions. Here are some key points to keep in mind if you choose this method to file self-employed taxes.

  • Your annual turnover must be below Rs. 50 lakhs  in gross receipts or below Rs. 2 crores in business turnover.
  • The minimum income for professionals is considered to be 50% of gross receipts.
  • The minimum income for business owners is considered to be 8% of gross receipts.
  • In case of digital receipts, the minimum income for tax purposes would be calculated at 6% of the digital receipts.

Self Employed Taxes Under the Real Profit Scheme

If you choose to go with the real profit scheme to file your income taxes, then you will be eligible to deduct expenses from your taxable income. Here are some things to keep in mind:

  • You can claim numerous deductions from your taxable income, including regular expenses incurred towards your business such as rent and salaries paid, interest paid on business loans, insurance premium, etc.
  • You can also claim other expenses such as internet and telephone bills, travel costs, etc.
  • You will need to maintain receipts and vouchers as valid proof for the expenses that you claim.
  • If your income exceeds Rs. 50 lakhs per annum, you will need to get your books of accounts audited by a Chartered Accountant.

Understanding Income Tax for Self-Employed

As a self-employed individual, here are the tax slabs that will be applicable to you:

Income Tax Slab

Income Tax Rate

Less than Rs. 2,50,000


Rs. 2,50,001 – Rs. 5,00,000

5% above Rs. 2,50,000

Rs. 5,00,001 – Rs. 7,50,000

Rs. 12,500 + 10% above Rs. 5,00,000

Rs. 7,50,001 – Rs. 10,00,000

Rs. 37,500 + 15% above Rs. 7,50,000

Rs, 10,00,001 – Rs. 12,50,000

Rs. 75,000 + 20% above Rs. 10,00,000

Rs. 12,50,001 – Rs. 15,00,000

Rs. 1,25,000 + 25% above Rs. 12,50,000

Above Rs. 15,00,000

Rs. 1,87,500 + 30 % above Rs. 15,00,000

Depending on your income and the deductions that you claim, these will be the self-employed taxes that will be applicable to you.

Apart from these rates, you will also have to pay surcharge, and health and education cess. In case of professional income, a TDS of 10% will be deducted from your receipts. However, just as in the case of salaried individuals, you can claim a refund of the TDS when filing income tax returns.

Tax-Filing Date

Taxation of self-employed persons have to be filed before 31st July every year. In case of failure to do so, you may incur a fine of up to Rs. 10,000.

How to File Income Tax for Self-Employed?

1.      Understand the Tax Treatment

Before you file taxes, you need to understand the tax treatment. A self-employed individual is anyone who is a business owner or a professional who makes income from consulting or other means. You will need to file taxes under the head “Profit and Gains from Business or Profession”.

2.      Choose the Right ITR

As a self-employed individual, you can file ITR-3 or ITR-4 for income tax. You need to know which is the right ITR to file. If you have any doubts, you can speak to a professional about which ITR to file.

3.      Compute the TDS

Self-employed individuals who are professionals and send receipts to clients will have Tax Deducted at Source at 10%. This TDS will be reported by the Income Tax Department. Based on the expenses and deductions claimed, you can claim a refund on the TDS.

4.      Claim Business Expenses

If you are a business operator, you can claim certain expenses for your business. This includes rent paid, salaries paid, depreciation of equipment, travel costs, phone bills, etc.

What Happens if You Make a Loss?

If you a business owner filing self-employed taxes, you will not need to pay taxes if you make a loss in a particular year. Moreover, you can carry over the losses made into the next year and set it off against losses. However, you will still need to file your tax returns even if you incur a loss.

Final Word

Income tax for self-employed persons has to be filed if you do not draw a regular income from salaries or a fixed income from an organization. As a professional or a sole business owner, you can file tax for self-employed people using ITR-3 or ITR-4. There are various provisions to keep in mind while filing income taxes for self-employed persons. If you are not sure of what the provisions are or are confused about how to go about filing taxes, you can consult a professional to file taxes on your behalf.

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