Are you a self styled freelancer, a software developer, a photographer, an interior decorator, fashion designer or a tutor? You don't earn a salary but run a business. If you are worried about how you should do your income tax returns, this brief guide will help you navigate.

The salaried have it easy, simply upload your Form 16 and offer your total salaried income including income from any other sources to tax and file your return. The unique aspect of preparing tax details for a freelancer is that expenses of a freelancer are allowed to be deducted from a freelancer's income. Let's find out more.

Collate receipts to calculate freelancing income

Start with putting together details of your gross income. This is the sum of all the money you have received against the work done by you. If your receipts are received in a bank account, sum them up by reviewing your bank account credits. You have to add the payments received by you from April 1, 2014 to March 31, 2015. If you have loaned some money from friends or relatives to get started that does not count as your income. Include only the payments towards your freelancing work. Your income from other sources such as interest earned on deposits or savings account is not included in the freelancing income. Such other incomes are part of other heads in your return.

Deduct freelancing expenses

Your credit card statements or your bank account statement will be the source for expenses detail. From your gross income several expenses are allowed to be deducted. An important criterion for allowing expenses to be deducted is that these must have been incurred exclusively towards the freelancing work. Say if you are an app developer, you can deduct money spent on testing apps and software purchases. If you have certain expenses, like say a telephone bill that you use both for personal and professional purpose you can allocate a reasonable per cent to your freelancing work and deduct them.

You can also deduct the cost of your high speed internet connection. You may have also used it for your personal purposes and therefore, you can allocate a reasonable percentage of the expense to your freelancing work. You can calculate this percentage by either watching a trend each month and fixing a ratio or allocating each month based on usage. You can also claim rent you pay for the place from where you do your freelancing work. If you had to travel to meet clients, do meetings, and pay for meal and entertainment expenses those are deductible too.

A photographer can deduct expenses involved in developing and printing pictures. Depreciation can be claimed on assets bought such as laptops, printers, cameras (for photographers).

In simple words depreciation involves spreading the cost of an asset over few years rather than expensing it upfront, based on the premise that assets such laptops are consumed or used over a longer period of time rather than upfront. Any fees paid for professional associations and business subscriptions are also deductible. Do bear in mind that the expense must be towards your freelancing work, it is incurred during the financial year for which you are filing the return, it is not a personal expense and is not spent on a purpose which is prohibited by law.

Reduce your freelancing expenses from freelancing income and this is the income which will be included under the head income from business and profession in your income tax return.

Include any other income in your return

Include any other source of income that you have. Do you earn interest income from savings account or FDs - add that to income from other sources. If your employer paid you salary for a part of the year while you were still working, add that under the head income from salary. If you have a home loan or earn rental income include it in the return under relevant heads. Sum up all these heads to arrive at your gross total income.

Deductions under section 80C to 80U

A freelancer, similar to those who are salaried, can claim all the deductions listed under Section 80, by fulfilling the conditions listed therein. If you have made investments to PPF, bought NSCs, or paid a life insurance premium, you can avail deduction under section 80C. Section 80D allows you to claim expenses you incur for insuring health of yourself and your family, including your parents. If you have donated to eligible funds under section 80G you can claim a deduction. Rs 10,000 is allowed as a deduction from interest earned on savings accounts under section 80TTA. You are eligible to claim all of these deductions.

Your taxable income shall be your gross income less deductions under section 80.

Taking benefit of TDS

You have to pay tax on the taxable income calculated in the above step. This the final amount on which income tax slabs shall be applied and your tax dues estimated. If any of your clients have deducted TDS on payments made to you, you can take credit of this tax deducted from your final tax dues. You can also reduce TDS deducted by banks. Look up your Form 26AS to find out the details of TDS deducted and make sure these are all included in your return.

Advance Tax: If your total tax liability in year exceeds Rs 10,000 you may have to pay 'Advance Tax'. This simply means paying tax on your income at frequent intervals (laid out by the tax department) rather than paying a lump sum amount at the year end. This required estimating your expenses and income on a reasonable basis.

If you haven't paid any advance tax during the year or paid less than 90 per cent of your tax dues before 31st March or didn't pay as per the due dates of advance tax payments, you may see an interest charged in your final tax calculations under section 234B and 234C.

Source:http://profit.ndtv.com/